Bangko Sentral ng Pilipinas Governor Eli M. Remolona is charting a clear path towards establishing a credible yield curve, underscored by its tenor-based, transactable, and transparent features.
With a commitment to enhancing the efficiency of domestic capital markets and ensuring robust yields for various tenors, Remolona set an ambitious target to achieve this milestone by January 2024, carrying on the fighting spirit of his predecessor, former BSP chief Felipe M. Medalla.
In an exclusive interview with Bloomberg TV during a Philippine Economic Briefing in Toronto, Canada, Remolona highlighted the importance of collaboration with banks in shaping this critical curve.
Recognizing the value of open discussions with market traders, the BSP aims to garner valuable insights and foster a cooperative approach to implementation.
Presently, the BSP operates with a workable yield curve, but Remolona’s vision extends beyond that. He seeks to elevate the curve to a more comprehensive representation of liquidity across different maturities, ensuring its credibility as a reliable benchmark for market participants.
According to Remolona, a credible yield curve serves as a powerful tool for transmitting monetary policy effectively.
By refining the curve, the BSP aims to enhance its capacity to manage the economy’s inflation target, bolstering its ability to navigate varying economic conditions.
In line with its dedication to advancing monetary operations, the BSP recently introduced its first overnight (ON) reference rate on July 5, replacing LIBOR.
Derived from the secondary market rate of the 28-day BSP bill and its ON equivalent, this ON rate bolsters the BSP’s ON reverse repurchase (RRP) agreement facility, contributing to a more refined monetary toolkit. Further enhancements will see the new rate from the RRP facility become the ON reference rate.
