Interest rate corridor and means for Philippines

The BSP has been developing its monetary policy toolkit by moving to a multiple interest-rate policy scheme, which was first announced in 2013. Currently, the reserve repo rate (currently at 4%) serves as the BSP's policy rate, or the primary monetary policy instrument, to manage its inflation target. The BSP also uses the reserve requirement ratio, the SDA rate, the re-discount rate on loans to banking institutions, and the outright sales/purchases of its government security holdings.

The SDA rate (currently at 2.5%) is used for fixed-term deposits by banks and by trust entities of banks and non-bank financial institutions with the BSP, and has been a key tool since 2013 in the pricing of deposit and loan rates. Currently, the saving/deposit rate released by the BSP is 0.68%, while the average commercial bank lending rate is c.5.5%. The BSP aims to use the following three rates to manage liquidity. 

"The overnight lending rate (6%) will be used to inject liquidity by  repurchasing government securities from banks. The SDA rate will continue to be used as a deposit facility for banks to place their excessive funds. The policy rate will be used as a signal for monetary policy stance towards achieving a balance between inflation and growth", expects Standard Chartered.

The broadening or narrowing of the interest rate corridor should more effectively support borrowing and/or lending activity, and give the BSP more control over domestic liquidity conditions. On 13 April, the BSP announced details of a new deposit facility for banks, as part ofits efforts to curb liquidity and influence market interest rates more effectively.

According to Deputy Governor Guinigundo, the deposit facility is aimed at controlling excess liquidity to move market interest rates closer to the monetary policy stance. Under this scheme, banks will participate in weekly auctions for a fixed volume of term deposits, says Standard Chartered.