How the Philippines is honing its tools to better fight inflation
After consumer prices in the Philippines spiked at their fastest pace in more than a decade in January, the country’s central bank embarked on further changes in how it manages the money supply to combat the crisis.
coronavirus crisis more effectively and help stimulate economic activity.
1.What’s new?
Bangko Sentral ng Pilipinas will roll out more changes to its currency operations this week after expanding the list of short-term securities it issued in June and the following month it began accepting all offer their reverse repo facility. tools. Governor Eli Remolona, who took office on July 3, said the BSP is working to establish a market-determined overnight interbank rate.
These initiatives aim to improve monetary tools and enhance the ability to guide short-term interest rates, which in turn influence long-term interest rates and economic activity.
2.How are things going?
Inflation continued to accelerate in August after falling to a 16-month low in July, prompting monetary authorities to further reduce price risks.
The central bank raised its policy rate by 425 basis points between May 2022 and March 2023, in its most aggressive tightening cycle in two decades and despite keeping rates steady Since May this year, Remolona remains open to the possibility of further interest rate hikes.
3.What is the basic goal of the PASB initiatives?
The BSP wants to ensure that any change in monetary policy will have the expected impact on financial markets and the economy.
The more effective policy changes are reflected in borrowing costs and real investment returns, the more effectively the central bank can fight inflation.Low and stable inflation helps promote economic growth.
4.How does the PASB implement its initiatives?
With the passage of the amendment to the new Central Bank Law in 2019, the BSP can now issue its own debt securities as part of its monetary operations tool.
It does this to carry out monetary policy and liquidity management activities that steer short-term market interest rates toward the policy rate and influence the money supply.
Its other short-term policy instruments include the Term Deposit Facility, the Overnight Reverse Repo Facility, the Overnight Deposit Facility, and the Overnight Lending Facility. The changes made stem from the adoption of the interest rate corridor system in 2016. These changes are largely operational in nature and do not constitute a change in the BSP’s monetary policy stance.
5.What are the recent improvements to BSP’s monetary performance? You have to know that There are several: The central bank introduced the 56-day BSP Bill in June to complete the 28-day deadline.
• It aligns the timing of the reverse redemption facility with other active instruments – the BSP stock facility and the time deposit facility.
• It has also moved from a fixed volume format to a fully distributed auction system for a daily RRP basis.This gives the BSP the flexibility it needs to absorb fluctuations in the excess liquidity of the financial system.
• The final stage will be to switch from a fixed-rate auction to a variable-rate auction system.
The revised format, which comes into effect on September 8, will provide more opportunities for price discovery in the interbank market and support more activity in the money market.
With the move to variable
With the move to variable rate auctions, the BSP policy rate will be known as the “RRP target rate”, which will be set after each Monetary Committee policy meeting.
The official operating target, which is the market-determined short-term interest rate that the BSP can guide daily, will be known as the “overnight RRP rate”.
6.What are the other results?
These changes allow the PASB to align its monetary policy implementation with best practices in other parts of the world.
These improvements will encourage banks to borrow and lend in the interbank market, thereby adding depth to the money market.
A reliable benchmark could emerge, which would encourage the issuance and trading of bonds, which is essential for the development of the domestic capital market.
A more developed capital market could help attract much-needed capital for infrastructure projects.
Rejoice always, pray continually, give thanks in all circumstances; for this is God’s will for you in Christ Jesus.1
