BSP cuts rediscounting rates

MANILA – The Bangko Sentral ng Pilipinas (BSP) has reduced the rates on its Peso Rediscounting Facility effective November 8.

The central bank announced on Tuesday that the applicable rediscounting rate for the 1-90 day maturity will be lower at 7.7330 percent from its previous 7.8356 percent rate beginning on Wednesday, 

For the 91 to 180-day tenor, the rate is also reduced to 7.9660 percent from its previous rate of 8.1712 percent.

The BSP made the announcement ahead of its November 16 Monetary Board policy rate decision. The BSP key rate is currently at 6.5 percent after an off-cycle rate increase last October 26 of 25 basis points (bps).

The peso rediscount rates are based on the BSP overnight lending rate, while the Exporters’ Dollar and Yen Rediscount Facility (EDYRF) rates are based on the applicable benchmark rates.

The BSP reiterated that the appropriate spread, as may be determined by the BSP, may change periodically to complement the changes in the BSP’s monetary policy goals and reflect movements in market interest rates.

Rediscounting is a BSP credit facility extended to qualified banks with active rediscounting lines. The facility helps banks meet their temporary liquidity needs by refinancing the loans they extend to their clients using the eligible papers of its end-user borrowers.

The BSP did not disclose if there were new availments for the rediscounting facility for the month of September and October.

From January to August this year, the BSP said no banks tapped the facility. One of the reasons for this is because the financial system is awash with cash and there was no need to borrow from the BSP.

At the end of 2022, total peso rediscounting loans amounted to P15.3 billion. Meanwhile, the last time banks availed of the EDYRF was in 2016.

Rediscounting allows eligible papers such as credit instruments including promissory notes, drafts or bills of exchange for commercial credits.

Production credits are also allowed which are used for production or processing of agricultural, animal, mineral, or industrial products. Other credits or special credit instruments such as, but not limited to, microfinance, housing loans, services, agricultural loans with long gestation period, and medium and long-term loans are also accepted.

The Monetary Board, in raising the key rate by 25 bps last week, has noted that second-round effects “broadened” because of  transportation fare increases and minimum wage adjustments.

The inflation expectations have also risen sharply, highlighting the risk of further second-round effects.

Meanwhile, the BSP will revise its inflation forecasts for 2023, 2024 and 2025 on Nov. 16 which is the scheduled policy rate meeting. It has a current average inflation forecast of 5.8 percent for 2023. (MB)