Banks, BSP in search of a new interest rate benchmark

Local banks want the overnight borrowing rate to replace the 91-day treasury bills as the reference for pricing their loans and Bangko Sentral ng Pilpinas (BSP) Governor Amando Tetangco Jr. said Wednesday the idea will be studied. He emphasized the benchmark must be market-based.   “The treasury bill rate is no longer reflective and no longer appropriate for a benchmark so we are looking for an alternative right now,” Tetangco acknowledged.   He said the BSP is considering various alternatives but did not go into details.   The overnight borrowing rate is set by the BSP and is used as an inflation-targeting mechanism by influencing the flow of money through the country’s financial system.   In 1983, the BSP adopted a market-based policy to set interest rates.   In Monday’s securities auction by the National Treasury, the 91-day T-bills went for 2.383 percent. The overnight borrowing or reverse repurchase rate is at a record low of 4 percent.   The Bankers Association of the Philippines said the short-termTtreasury bill ought to be replaced as the benchmark, because in the current low-interest rate regime the 91-day bill is sometimes lower than the deposit rate.   A maximum spread or margin of 5 percent on top of the benchmark is the practice of local banks in pricing their loans. — ELR/VS, GMA News