NEW REFERENCE RATE. Market players have agreed to monetary authorities' proposal to use the 28-day bill rate as a reference rate effective on or before June 30, 2023 in line with the global deadline for the cessation of the use of the London Interbank Offered Rate, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla (left) said during a press briefing at the BSP Manila office on Wednesday (June 21, 2023). With him is BSP Assistant Governor Johnny Noe Ravalo. (PNA photo by Joann S. Villanueva)
MANILA – The Bangko Sentral ng Pilipinas’ (BSP) 28-day bill rate will be used as a reference rate effective on or before the end of this month in place of the global deadline for the cessation of the London Interbank Offered Rate (LIBOR).
In a briefing on Wednesday, BSP Governor Felipe Medalla said market players have agreed on the use of the BSP securities rate, noting the 28-day securities is an ideal reference rate because “it is actually a heavily-populated tenor.”
Medalla said monetary authorities have also discussed with stakeholders the urgency of having a credible yield curve.
“Since macro-financial decisions are based on these benchmark risk prices, having a credible yield curve is in everyone’s best interest,” he said. “We believe that a credible yield curve must arise from active trading of marketable securities, provide yields for various tenors, make these yields usable to all parties, and can be replicated as needed.”
Citing that introducing a new yield curve needs time and cooperation among stakeholders, Medalla said they would use the six-month period from July to December this year to gather data on how to efficiently determine the yield curve and the reference rate.
He said the goal is “to have a yield curve that is constructed based on done deals.”
“While there are several tasks that need to be undertaken, it was agreed at the end of the town hall discussion that the start of January 2024 will be our ‘fighting target’ to have a credible yield curve in place,” he said.
Medalla said ideally, the reference rate should not be computed.
“It should be the result of market transactions,” he said.
To date, the BSP’s key rates under the interest rate corridor (IRC) are the overnight deposit rate, the reverse repurchase (RRP) rate, and the repurchase (RP) rate, which are at 5.75 percent, 6.25 percent, and 6.75 percent, respectively.
Medalla said the RRP is being rationed unlike the 28-day bill, which is awarded as offered.
Its rate, he said, “equates the money supply.”
Medalla said globally, “markets are looking for alternative means to the overnight rates.” (PNA)
