Bangko Sentral ng Pilipinas will offer P30 billion worth of term deposits during the maiden auction on June 8 as a part of the shift to interest rate corridor system.
Bangko Sentral said in a notice posted on its website the volume would include P10 billion worth of seven-day term deposits and P20 billion worth of 28-day term deposits.
Bangko Sentral scheduled every Wednesday the auction day for the term deposit facility, which is designed to boost the influence of the main overnight borrowing rate and guide market rates closer to the benchmark.
Bangko Sentral announced the formal shift of its monetary operations to an interest rate corridor starting June 3.
Under the interest rate corridor, the rate on the current overnight lending facility of 6 percent was
reduced to 3.5 percent, while the reverse repurchase facility or overnight borrowing rate of 4 percent was adjusted to 3 percent. The special deposit account rate of 2.5 percent was kept steady.
The term deposit auction facility is seen to have a rate between that of the overnight borrowing facility and overnight deposit facility such that the weighted rate for monetary operations will remain broadly the same.
The rate at the floor of the corridor, where bulk of Bangko Sentral’s liquidity absorption with the market currently takes place, was kept steady at the launch of the system.
Bangko Sentral Governor Amando Tetangco Jr. earlier said the interest rates for term deposit auction would be more or less between the policy rate and deposit rate.
“But we are not going to determine that. The market will determine that,” Tetangco said.
He said the IRC system did not represent a change in stance of monetary policy. The IRC reforms are operational in nature and will not affect materially prevailing policy settings upon implementation, he said.
Bangko Sentral said to prepare for the start of IRC operations, placement in the special deposit account facility underwent a winding down process. Outstanding term placements in the SDA window were allowed to mature without rollover in a phased manner to enable all existing term placements to be converted to overnight placements prior to the start of the auction-based
operations.
Bangko Sentral Deputy Governor Diwa Guinigundo said the bank would initially start with seven-day and 28-day tenors for the term deposit auction.
Guinigundo said the auctions would likely be small in the beginning in line with planned gradual implementation of system’s related reforms. He said the volume would be scaled up later to enable convergence of market interest rates to policy and target rates.
He said the tenor would depend on market conditions but the decision to go higher (in mopping up liquidity) might be driven by actual monetary conditions.
Guinigundo said the impact of term deposit facility on market rates would increase as volume of offerings rose.