BSP mops up P14 trillion liquidity as easing cycle takes hold

MANILA, Philippines — Domestic liquidity expanded at a faster pace in August as the Bangko Sentral ng Pilipinas (BSP) continued to manage excess funds in the financial system following a series of policy rate cuts.

In its latest monetary policy report, the central bank said it absorbed P1.4 trillion in liquidity as of Aug. 5 through its regular market operations, with nearly half or 46.5 percent of the amount placed in the BSP Securities Facility.

The rest of the excess cash was mopped up through the overnight reverse repurchase (RRP) window at 27.6 percent, the overnight deposit facility at 16.8 percent and the term deposit facility (TDF) at 9.1 percent.

The BSP’s open market operations kept the overnight RRP rate closely aligned with the target policy rate, which was lowered by 25 basis points to five percent in late August.

Interest rates in the TDF and BSP bills also reflected the cumulative policy rate reductions since August 2024, with auction yields declining across all tenors.

During the TDF auction on July 30, rates fell to 5.2521 percent for the seven-day tenor and 5.3009 percent for the 14-day tenor, while the Aug. 1 BSP bill auction saw rates at 5.3842 percent for 28-day bills and 5.391 percent for 56-day bills.

Liquidity growth was supported by sustained bank lending to both corporations and households as well as increased net claims on the national government.

The BSP said corporate lending remained broad-based, led by real estate, energy, finance and transport sectors.

Consumer loans also accelerated, driven mainly by credit card, motor vehicle and general-purpose lending.

Capital market conditions likewise reflected expectations of lower inflation and further monetary easing.

In early August, the Bureau of the Treasury sold P28.4 billion in Treasury bills, exceeding the initial offer, while the five-year retail Treasury bond issuance attracted P354.2 billion in bids, nearly 12 times oversubscribed.

Yields on government securities in the secondary market were mostly lower, mirroring the softer long-term inflation outlook and cautious stance of the US Federal Reserve.

The BSP said it would continue to calibrate its operations to keep market rates in line with the policy corridor while ensuring that liquidity conditions remain supportive of economic growth.