MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) said yesterday it has cut its rediscount rate by 50 basis points and will raise the budget for the lending facility for the second time in four months to spur lending amid the economic slowdown.
The reduction brings the central bank’s peso rediscount rate – the rate at which it lends to commercial banks – to five percent, the same as its key overnight borrowing rate.
The central bank’s budget for its rediscounting facility would also increase to P60 billion from P40 billion.
“These changes would provide more liquidity and credit in the banking system to ensure the orderly functioning of financial markets should global financial conditions worsen,” the BSP said.
“The liberalized rediscounting guidelines would enable banks to rediscount more loan papers and therefore, have access to additional funds that they can relend to the public,” the BSP said.
The changes, approved by the monetary board last week, will take effect on March 2.
The central bank last hiked its budget for its rediscounting facility in November, doubling it from P20 billion, to allow more banks to obtain fresh cash from the central bank using promissory notes or other eligible debt for short-term liquidity needs.
In aligning the peso rediscount rate with the benchmark overnight borrowing rate, central bank Governor Amando Tetangco said: “For more effective monetary policy, all central bank monetary policy instruments should be priced off this policy rate.
The central bank slashed its overnight borrowing rate by a total 100 basis points in December and January and analysts are expecting more cuts to help the economy cope with the global downturn.
The monetary board also approved an increase in the required ceiling for banks’ non-performing loan ratio to 10 percentage points above the industry average from the current ceiling of two percentage points to improve access to the rediscounting window.
Meanwhile, the central bank also increased the loan value of all eligible rediscounting papers from 80 percent to 90 percent but not to exceed 70 percent of the value of the underlying collateral.
The BSP likewise dispensed with the provision that required majority shareholder in banks to execute a surety agreement when trying to secure a loan through the rediscount facility.
“We used to do require this to ensure good corporate governance, to protect the BSP’s interests when we lend to banks,” BSP Deputy Governor Diwa Guinigundo explained. “We decided that is no longer necessary because these loans are collateralized anyway.”
Finally, the BSP said the interest on the rediscount loans would no longer be based on the 91-day Treasury bill (T-bill) rate and instead it would be pegged on the BSP’s overnight reverse repurchase rate, less 50 basis points.–Des Ferriols, Philippine Star