BSP Deputy Governor Diwa Guinigundo said the central bank would announce 15 days prior to the implementation of the framework aimed at further enhancing the transmission of central bank’s policy decisions to relevant money market rates, and ultimately to key macroeconomic variables. STAR/File photo
MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is on track in the implementation of the interest rate corridor (IRC) system designed to enhance the effectiveness of monetary policy in the second quarter.
BSP Deputy Governor Diwa Guinigundo said the central bank would announce 15 days prior to the implementation of the framework aimed at further enhancing the transmission of central bank’s policy decisions to relevant money market rates, and ultimately to key macroeconomic variables.
“Well basically we are on track in the implementation of the IRC in the second quarter of 2016. All the systems are in various stages of installation,” he said.
Tetangco said the liquidity forecasting model of the BSP is going through further validation.
The shift to an IRC system is expected to support the development of Philippine capital markets by providing an enabling environment for increased money market transactions as well as promoting more active liquidity management by individual counterparty financial institutions.
The BSP announced in September last year the plan to implement an IRC system as part of key changes in the framework for monetary operations designed to enhance the effectiveness of monetary policy.
Guinigundo said the system would include the implementation of a deposit facility and a lending facility that will form a corridor around the BSP’s policy rate.
Guinigundo said the new system also aims to reduce reliance on the reserve requirement for the market’s liquidity management.
“We expect that improvement in market sentiment, revival of interest in emerging markets including the Philippines, then we would expect some capital flows, more capital flows in fact.
The IRC system calls for the shift to the use of floor and ceiling rates for short-term financing to be determined through the auction of seven- and 28-day deposit maturities initially set at once a week.
The auction to be conducted by the BSP would not compete with the auction of treasury bills and treasury bonds being conducted by the Bureau of Treasury.
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