4-9-2023 (MANILA) The Philippine central bank announced on Monday that it would transition its reverse repurchase operation (RRP) from a fixed-rate system to a variable-rate auction format starting from September 8. This move aims to enhance the transmission of monetary policy to the economy.
According to the central bank, adopting a variable-rate auction format will also improve the price discovery process by providing both market participants and monetary authorities with a market-determined interest rate that reflects the prevailing cost and demand for overnight funds.
The market-determined rate for overnight funds will be referred to as the “Overnight (ON) RRP Rate,” and it will display the outcomes of the daily RRP auctions. The ON RRP rate is anticipated to closely align with the central bank’s benchmark interest rate, which will now be termed the “Target RRP Rate.” The Target RRP Rate will continue to be determined by the Monetary Board during its rate-setting meetings, which occur every six weeks.
The central bank clarified that these changes are primarily operational in nature and do not signify any alteration in the BSP’s (Bangko Sentral ng Pilipinas) monetary policy stance.
