Banks awash with cash

No takers for rediscounting facility

MANILA, Philippines — The peso rediscounting loan facility of the Bangko Sentral ng Pilipinas (BSP) has no releases in January as banks remain awash with cash.

Rediscounting is one of the credit facilities offered by the BSP to qualified banks with active rediscounting lines to meet their temporary liquidity needs by refinancing the loans they extend to their clients using the eligible papers of their end-user borrowers.

The eligible papers include credit instruments such as promissory notes, drafts or bills of exchange of commercial credits, production credits, and other credits.

The BSP earlier said banks continue to recognize the central bank’s rediscount facilities as a funding option should liquidity no longer be sourced from the market. About 50 banks maintain rediscounting lines with the BSP as part of their contingency funding plan.

Likewise, the BSP also reported there was no availment under the Exporters’ Dollar and Yen Rediscount Facility (EDYRF) in January. The facility was last tapped in 2016 through a dollar rediscounting loan.

After emerging as one of the most aggressive central banks in the world in 2020, the BSP has maintained an accommodative monetary policy stance by keeping the benchmark interest rate at a record low of two percent for more than a year to help the economy fully recover from the impact of the pandemic.

It last tweaked interest rates in November 2020 via a surprise 25-basis-point cut, bringing the total reduction to 200 basis points.

The central bank again extended the zero spread on its peso rediscount loans until end-March to allow banks to tap the facility to meet their temporary liquidity needs.

The BSP first approved the temporary reduction in the spread on peso rediscounting loans relative to the central bank’s overnight lending rate to zero initially from March 20 to May 19, 2020 after Luzon was placed under enhanced community quarantine to slow the spread of COVID.

It was extended to July 17 and Sept. 30, 2020 and then to Jan. 31, April 30, July 31 and to Dec. 31 last year as part of measures aimed at providing the needed liquidity to banks for purposes of maintaining price and financial stability.

For this month, the BSP pegged the applicable rediscount rate on loans under the peso rediscount facility at 2.50 percent, regardless of maturity, while the yields under the EDYRF was pegged at 2.30886 percent for dollar and 1.97937 percent for Japanese yen, regardless of maturity.