BSP absorbs P1.6 trillion in excess liquidity

The Bangko Sentral ng Pilipinas (BSP) has absorbed P1.624 trillion in excess liquidity from the financial system as of the end of July 2024, using its securities and deposit facilities to manage inflation and liquidity. These operations help control money supply in the economy by parking surplus funds from banks in the BSP’s interest-earning instruments.

The central bank’s key tools in this effort include the BSP bills and Term Deposit Facility (TDF), which collectively accounted for 70.5% of the total absorbed liquidity, or P1.144 trillion. Of this, BSP bills absorbed P948.416 billion, while the TDF accounted for P196.504 billion.

Other open market facilities, including the Overnight Reverse Repurchase (RRP) facility and the Overnight Deposit Facility (ODF), absorbed an additional P479.08 billion, or 29.5% of the total liquidity.

These monetary operations are essential in influencing the demand and supply for central bank money, helping to stabilize inflation and manage the financial system’s liquidity. Through its interest rate corridor (IRC) system, introduced in 2016, the BSP uses these tools to guide short-term market rates closer to the target policy rate.

Currently, the BSP offers short-tenor instruments like 7-day and 14-day deposits, along with 28-day and 56-day BSP bills, to align with market preferences for shorter maturities.