BSP will turn the GS purchase window into a regular install


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By Keisha B. Ta-asan

The BANGKO Sentral ng Pilipinas (BSP) announced on Monday that it will reconfigure its Government Securities (GS) purchase window into a regular liquidity facility under the Interest Rate Corridor (IRC).

“ReconIfguring the GS window in a regular liquidity facility that can operate in both normal and stress conditions ensures consistency with the overall monetary strategy,” BSP Governor Benjamin E. Diokno said during his weekly press conference.Ifng.

“This is in line with PASB’s desire to develop a wide range of instruments and new operational procedures to combat future crises.”

The central bank started issuing 28-day BSP bills in September 2020, as an additional tool to manage liquidity in the Iffinancial system in the midst of the pandemic.

“The issuance of BSP Securities provides an additional monetary tool for the implementation of monetary policy. It also promotes greater flexibility in the management of liquidity in the financial system under the interest rate corridor or the IRC framework,” said Diokno.

Normalization of the BSP GS window involves three steps: transition, reconfiguration and relaunch.

The transition stage includes reducing her daily purchases in the GS window as she transitions to a standard installation. Nevertheless, the installation could be reactivated if justiIfé by market conditions.

The second step involves the conversion of the GS window from a standing facility to an active operation consistent with the global monetary strategy consistent with the IRC framework.

The BSP introduced the IRC system to steer short-term market interest rates towards the central bank’s policy rate. It consists of a rate at which the BSP lends to banks (usually an overnight lending rate) and a rate at which it takes deposits (deposit rate).

When the reconfiguration is complete, the BSP will relaunch outright transactions in government securities. Market research activities and technical assistance from international institutions will be included.

“Basically BSP is just reversing what it did during the pandemic when it flflooded the market with excess liquidity. Now that inflation can no longer be ruled out as transitory, reconIfguring its open market operation using GS will have to do the heavy lifting. BSP also needs to normalize its balance sheet,” former BSP Deputy Governor Diwa C. Guinigundo said in a Viber message.

The share of outstanding investments in BSP Securities represented 35% of the total amount of system liquidity absorbed by the BSP through its liquidity management mechanisms at the end of May 2022.

“With the economy in much better shape and hopefully the end of the pandemic, BSP chose to close this emergency window as there was less need for such a facility,” said Nicholas Antonio T Mapa, Senior Economist of ING Bank NV Manila. in an email.

“Any increase in yield is likely related to other developments such as the acceleration ofFLation or increase in government borrowing and normal market trading activity now takes place.

Inflation jumped to 5.4% in May, the fastest in three and a half years, as food and fuel prices continued to climb amid the protracted war between Russia and Ukraine.

Last month, the BSP raised its average inFLation forecast for 2022 at 4.6% against 4.3%, exceeding the target of 2% to 4%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that these liquidity management tools “provide more options, breathing space and flexibility for monetary authorities to respond effectively to changing economic and business conditions and challenges, such as the COVID-19 (coronavirus disease 2019) pandemic/lockdowns.

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