Philippine monetary authorities are changing the way they manage inflation by taking a tighter grip on the supply of money circulating in the financial system.
(Bloomberg) — Philippine monetary authorities are changing the way they manage inflation by taking a tighter grip on the supply of money circulating in the financial system.
Bangko Sentral ng Pilipinas is looking to expand the auctions of its securities and discontinue its practice of rationing the offers. Under the current setup, when banks’ bids exceed 305 billion pesos ($5.5 billion), the central bank proportionately rations the awards.
“The entire idea is that the BSP has tools to manage the interest rate not just directly by policy rate changes but also by the supply of money,” Governor Felipe Medalla told a news briefing after the central bank kept the policy rate unchanged. “Our long-term plan is that we will no longer ration the reverse repo,” he said, referring to the central bank’s primary monetary instrument to siphon off excess liquidity.
The central bank’s menu of money market instruments widened in recent years with the introduction of term deposits maturing in 7, 14 and 28 days and the 28-day BSP securities. Its securities holdings have thus doubled from 305 billion pesos, giving it leeway to auction more. It plans to introduce a tenor of 56 days.
These are also part of efforts by BSP to manage money supply as it looks to replace possibly in June the pandemic relief measures with a planned cut in banks’ reserve requirement which would flood the system with liquidity.
–With assistance from Andreo Calonzo.
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