BSP to start repo reforms next week

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said game-changing financial sector reforms would kick off next week with the rollout of the repurchase market for banks.

The central bank is accelerating financial market development as part of its strategic policy reform, BSP Governor Nestor Espenilla Jr. said in his keynote address during the 11th ING – Finex (Financial Executives Institute of the Philippines) CFO of the Year Award.

“We envision a more balanced financial ecosystem where a well-functioning banking system is complemented by a deep and liquid capital market. There’s much room for growth in the domestic debt market,” he said.

The BSP is closely collaborating with the Department of Finance (DOF), Securities and Exchange Commission (SEC), the Bureau of the Treasury (BTr) and industry stakeholders to deepen the local currency debt market, according to Espenilla.

“This reform agenda officially unfolds with the launching of the government securities repo program on Nov. 27,” he said.

The BSP chief said the reforms are geared toward increasing transparency in the issuance and pricing of government bonds.

The conduct of open market operations is a monetary tool that involves the BSP publicly buying or selling government securities from banks and financial institutions in order to expand or contract the supply of money.

The BSP uses two instruments namely the repo or reverse repurchase agreements wherein it buys government securities from a bank with a commitment to sell it back at a specified future date at a predetermined rate as well as the outright purchases and sales of securities for the purpose of increasing or decreasing liquidity on a more permanent basis.

A repo transaction expands the level of money supply as it increases the bank’s level of reserves. Under a reverse repo, the BSP acts as the seller of government securities, thus, the bank’s payment reduces its reserve account resulting in a contraction in the system’s money supply.

Espenilla said the BSP is also further liberalizing foreign exchange (FX) rules to enhance the ease of doing business and to complement the local currency debt market development initiatives.

The liberalization measures, he said, forms part of a broader agenda for an organized FX market to enhance depth and transparency, improve price discovery, and increase availability of FX products, especially hedging instruments.

“FX regulations are being overhauled to achieve more efficiency and ease of doing business. The BSP will soon release an exposure draft on the liberalized rules on FX loans and offshore loans of the private sector,” he said.