BSP targets ‘credible yield curve’ for overnight rate by January 2024

The Bangko Sentral ng Pilipinas (BSP) is targeting to achieve a credible yield curve by January 2024, which will then serve as the basis for the overnight rate (ON) that can be used for various transactions.

According to BSP Governor Felipe Medalla, the market agreed with the central bank’s proposal to create an overnight rate which will be based on the 28-day BSP bill rate, and translated to its ON equivalent effective next Friday, June 30, 2023.

For the next six months, the BSP will have a tentative shift while it collects data for the yield curve hinging on the performance of the 28-day bill which the central bank offers on a weekly basis.

“Making changes to the current benchmark or introducing a new yield curve will require time and the full cooperation of all the stakeholders,” Medalla said in a briefing in Manila City.

The latest changes come amid the global deadline for the cessation of the London Inter-Bank Offered Rate (LIBOR) or the key benchmark for interest rates on loans, mortgages, and corporate debt.

“While there are several tasks that need to be undertaken, it was agreed at the end of the town hall discussion that the start of January 2024 will be our ‘fighting target’ to have a credible yield curve in place,” Medalla said.

Once the yield curve is in place, this will be used as the basis for the ON rate, which can then be used for various transactions across the country.

“From the BSP’s standpoint, we believe that a credible yield curve must arise from active trading of marketable securities, provide yields for various tenors, and make these yields usable to all parties, and can be replicated as needed,” Medalla said.

The announcement was made ahead of the expiration of Medalla’s term on July 3. President Ferdinand “Bongbong” Marcos Jr. has yet to make an announcement on who his successor would be.

Medalla is currently serving the unexpired term of his predecessor Diokno, who also took over the rest of the term of late former Governor Nestor Espenilla, Jr. who passed away in February 2019. — BM, GMA Integrated News