Operationalizing the interest rate corridor

PHILIPPINES - Report 30 May 2016 by Romeo Bernardo and Christine Tang

On Friday, the BSP will launch its interest rate corridor (IRC) system . The changes will be operational in nature and will not affect the stance of monetary policy. These changes include:
1. Adjustments to the set of interest rates used for open market operations with the lending and deposit rates serving as the ceiling and the floor, respectively of the IRC. Starting June 3, these rates will be set at +/- 50 basis points around the mid-corridor policy rate. (Graph 1)
2. The policy rate continues to refer to the overnight reverse repurchase (RRP) rate, which will be adjusted to 3% on June 3. Access to this facility is limited to banks and awards are on a pro rata basis depending on bid size.
3. A new term deposit auction facility (TDF) will be opened to both banks and trust entities under which the BSP will offer to accept on a weekly basis particular fixed-term deposits at pre-announced volumes. (Features of the RRP window and TDF are shown in Table 2)

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