He said that while the issuance of BSP bills or some other high-yielding government securities is among the tools they can use to defend the peso, monetary authorities continue to be vigilant in exploring and discussing all options to determine if these measures are suitable or not.
He said the BSP still has other measures which it can adopt before resorting to such borrowings.
In fact, he said, government would assess today the effect of an additional two-percentage point increase in banks’ liquidity reserves. "If the increase in the banks’ liquidity reserves has a positive impact in containing excess liquidity that is finding its way to the foreign exchange market, the BSP may hold off any further policy rate increase," Buenaventura said.
The BSP chief’s opposition to the issuance of high-yielding government bonds was supported in part by Finance Secretary Jose T. Pardo’s admittance that there may be some legal impediments in the issuance of such high-yielding financial instruments.
According to Pardo, government can only use such instruments if it can be proven that there is evidence of inflationary pressure.
The ‘Jobo bills,’ first issued in April 1984 by former Central Bank Governor Jose "Jobo" Fernandez, effectively mopped up excess liquidity that had been stoking inflation in the mid-80s. The issuance of the bills, which offered interest rates from 35 to 45 percent, was part of the "bitter medicine" that Jobo administered to revive the ailing economy in the turbulent mid-80s.
However, the high yield of the so-called ‘Jobo bills’ led to the massive financial losses of the then Central Bank.