The Bangko Sentral ng Pilipinas will avoid competing with the national government in the issuance of debt papers after President Rodrigo Duterte signed the BSP Charter amendments into law.
“We’ll deliberately work on the operational details so that there will be no competition between the national government and the BSP,” Deputy Governor Maria Almasara Cyd Tuano Amador said in a briefing Friday on the amendments to the BSP Charter.
Amador said the BSP wanted to have an expanded toolkit, an arsenal of policy instrument that could be used to fine-tune monetary aggregates in the economy.
“We have the current instruments and you very know about that already. But this one, particularly, the restoration of the authority to issue central bank debt papers... it’s a structural surplus liquidity absorption tool. So as to when it will be used it will be dictated by the times,” Amador said.
“In the past when you have considerable capital inflows, what we did is to use the SDAs [special deposit account facility] and then also right now we’re using the interest rate corridor. But when we have significant structural liquidity surplus, then we can start thinking about using in the central bank debt papers,” Amador said.
Amador said the operational details of the issuance of the central bank debt papers would be carefully coordinated with the national government, particularly in terms of tenor.
“As you know, the central bank is fine-tuning monetary policies and that speaks that kind of tenor we will be using to make sure that the money supply that is available, sloshing around the system is just enough to lubricate the functioning of the economy,” she said.
President Duterte signed into law “Republic Act No. 11211, or An Act Amending Republic Act No. 7653, Otherwise Known as the ‘New Central Bank Act’, and for Other Purposes.”
“The BSP appreciates the support of the Office of the President, the Senate and the House of Representatives in passing the law that bolsters the BSP’s capability to promote the stability of prices and the financial system,” said BSP Governor Nestor Espenilla Jr. “The amendments to the BSP Charter are both timely and attuned to a fast-evolving market landscape.”
“We also recognize the efforts of central bankers who began spade work on this legislative initiative some 20 years ago. Under our new Charter, we will continue to build on the central bank’s rich institutional experience under BSP’s Continuity Plus-Plus program,” said Espenilla.
The new BSP Charter embodies a package of reforms that will further align its operations with global best practices, improve the central bank’s corporate viability, and enhance its capacity for crafting proactive policies amid rising interlinkages in the financial markets and the broader economy.
In line with current international trends, the law removes money supply and credit levels as basis for determining monetary policy. The focus on these indicators has declined among central banks over the years, as fostering price stability now considers a broader set of indicators.
R.A. No. 11211 also restores the central bank’s authority to issue debt papers as part of its regular operation. This gives the BSP greater flexibility in determining the timing and size of its monetary operations.
Under the inflation targeting framework, the BSP focuses mainly on achieving price stability, instead of targeting monetary aggregates, as the ultimate objective of monetary policy.