Monetary Operations under the Interest Rate Corridor Framework
Issuance of BSP Securities
BSP Securities are monetary instruments issued by the BSP for its monetary policy implementation and liquidity management operations to steer short-term market interest rates towards the policy rate and influence liquidity conditions in the financial system.
With the passage of Republic Act (R.A.) 11211, which amended R.A. 7653 (The New Central Bank Act), the BSP’s authority to issue its own debt securities as part of its instruments for regular monetary operations has been restored. Previously, the BSP is only allowed to issue its own debt securities in cases when there are extraordinary movements in price levels. The restoration of the BSP’s ability to issue its own debt securities provides the BSP with an additional monetary instrument for absorbing financial system liquidity. The issuance of BSP securities complements the other short-term monetary policy tools used by the BSP to manage liquidity in the financial system, such as, the term deposit facility (TDF), overnight reverse repurchase (RRP) facility, overnight deposit facility (ODF), and overnight lending facility (OLF).
Moreover, the issuance of BSP Securities provides the BSP with greater flexibility in managing the liquidity in the financial system, particularly in the face of large structural liquidity surplus arising from capital flows or additional liquidity released from the reduction in the reserve requirement ratios of banks. BSP Securities will likewise add to the pool of risk-free assets in the financial system alongside the securities issued by the National Government (NG) which can be traded for liquidity purposes. Through the regular auction of BSP Securities, the issuance of BSP Securities can contribute to improved price discovery for debt instruments and support monetary policy transmission in the process.