The Bangko Sentral ng Pilipinas (BSP) on Thursday launched its overnight (ON) rate which now serves as market reference rate for lenders transiting from the London Interbank Offered Rate (LIBOR), which has since been dropped.
“This rate uses as reference the secondary market rate on the 28-day BSP bill to compute an ON equivalent. This starts a broader initiative to enhance the BSP ON Reverse Repurchase (RRP) Agreement facility. Once the enhancements are fully completed, the new rate from the RRP facility will become the ON reference rate,” the BSP said.
Until it was dropped, LIBOR was widely used by global lenders to price loans, mortgages and other financial instruments.
In pursuit of its statutory mandates, the BSP either siphons excesses or augments shortfalls in market liquidity via open market operations. The main tool is the ON RRP facility which is based on the BSP policy rate.
Under the existing framework, the RRP facility auctions a pre-announced amount at a fixed rate. The ongoing enhancements, such as the change in the auction window from 4 p.m. to 11 a.m., however, are designed to encourage more active liquidity management by the banks. The expected result of these improvements is a variable rate from the ON RRP facility that would be more responsive to changing market conditions.
