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Philippine central bank to make bond sales main liquidity tool
MANILA:The Philippine central bank said bond sales will become its main tool to control liquidity in the financial system, with its maiden sale of the securities on track for this quarter.
“The Bangko Sentral ng Pilipinas securities, over time, shall be considered the BSP’s main liquidity tool for locking in structural liquidity surplus, ” the central bank said in an emailed reply to questions on Tuesday.
The sale of the securities, which was allowed under the central bank charter approved last year, will better guide bond yields and improve loan pricing, BSP said.
The bond sale comes at a time when government debt yields are starting to rise and amid slower money supply growth.
“Market will look at the size of the offering and get its cues from there, ” said Paul Raymond Favila, head of markets and securities services at Citigroup Inc. in Manila.
“If there is a sense that BSP is starting an unwind, then you will see a fair reaction.”
At present, Bangko Sentral uses a host of tools including short-term deposits and reserve requirement ratios to manage money supply.
“With its own bond, it can better anchor market interest rates to the policy rate if there are significant misalignments in liquidity, ” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore.
“In the past, excess liquidity has made it more challenging for the central bank to guide interest rates when government bond yields diverged from the policy rate.”
The central bank also said it will continue to buy government bonds in the secondary market for as long as needed. The programme will be integrated into its monetary operations, it said. — Bloomberg