The Bangko Sentral ng Pilipinas said Thursday it will publish on its website an overnight rate that will serve as a market reference following the lapse of the global use of the London Interbank Offered Rate or LIBOR.
The overnight rate uses as reference the secondary market rate on the 28-day BSP bill to compute an overnight equivalent.
It said in a statement this starts a broader initiative to enhance the BSP ON Reverse Repurchase (RRP) Agreement facility. “Once the enhancements are fully completed, the new rate from the RRP facility will become the ON reference rate,” the BSP said.
The BSP said that in pursuit of its statutory mandates, it either siphons excesses or augments shortfalls in market liquidity via open market operations. The main tool is the ON RRP facility which is based on the BSP policy rate.
Under the existing framework, the RRP facility auctions a pre-announced amount at a fixed rate. The ongoing enhancements, such as the change in the auction window from 4 p.m. to 11 a.m., are designed to encourage more active liquidity management by the banks, it said.
The expected result of these improvements is a variable rate from the ON RRP facility that would be more responsive to changing market conditions, the BSP said.
The Bankers Association of the Philippines earlier voiced its support to the establishment of the new reference rate, saying “we desire to have a yield curve based on actively traded securities that result in high-volume transactions in the market.”