MANILA, Philippines — The central bank on Wednesday took another step closer toward issuing its own bonds, which will allow it to better regulate the amount of liquidity in the local financial system, by linking its electronic trading platform with that of the Bureau of the Treasury.

The agreement, once operationalized, will facilitate the seamless auctioning of Bangko Sentral ng Pilipinas-issued bonds and the registry and recording of these securities to enable primary market issuance and secondary market trading.

Speaking during the signing ceremonies of the deal, BSP Governor Benjamin Diokno said the monetary authority “will need greater flexibility through the use of its various instruments to manage the sizable liquidity released in the financial system in the months ahead.”

Previously foreign to BSP’s operations, the issuing of bonds by the monetary authority was allowed by Congress in the latest amendments to the central bank’s charter. By selling bonds to the market, the BSP can siphon off cash from the financial system to slow inflation, or it can buy them back and release liquidity that will encourage economic growth.

“The BSP is looking forward to its first issuance of securities this quarter,” Diokno said. “It took many years to finally amend the BSP charter and with it, restore the BSP’s authority to issue its own freely negotiable securities.”

The initial issuance of BSP securities is set within the third quarter of 2020, once all the requirements to support the issuance are in place.

Wednesday’s ceremony marked the signing of the memorandum of agreement between the BSP and the BTr for the linkage of the central bank’s Monetary Operations System and the Treasury’s National Registry of Scripless Securities.

Signing the deal were Diokno and Treasurer of the Philippines Rosalia de Leon, witnessed by Finance Secretary Carlos Dominguez III.

The connectivity of the two systems is an integral part of the process for the issuance of BSP bonds. Diokno said the agreement marks an important step towards the actual issuance of the BSP’s own securities for open market operations, as the linkage of the two systems would make the issuance to be possible by making the features of bonds tradable and, thus, more attractive to the market.

The BSP chief said three tasks still to be accomplished ahead of the scheduled third charter launch of the the bonds.

“First, the BSP will need to ensure that trading of the BSP Securities in the secondary market can be facilitated,” he said. “Second, when all the infrastructure systems needed in the primary and secondary markets are in place, the BSP will conduct end-to-end systems testing to ensure that the entire process from auction to trading in the secondary market works smoothly.

Finally, with a fully functioning system in place, the BSP will embark on coordination with its eligible counterparties for market sounding activities.”

JPV


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