| Reverse Repurchase Agreement |
| Product Definition |
A Reverse Repurchase Agreement (RRP) is defined where the Bangko Sentral ng Pilipinas (BSP) sells securities to a bank or financial institution that has quasi-banking licenses, with a commitment to buy this back on a specified date and specified rate. The RRP serves as a monetary tool of the BSP to control money supply using open market operations.
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Features:
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| Issuer | : | Bangko Sentral ng Pilipinas |
| Term | : | Subject to the discretion of the BSP oftentimes overnight, 14, and 30 days |
| Tax feature | : | Interest income with maturities of 5 days or less are deemed taxable and subject to prevailing corp. tax rate.
Interest income with maturities of more than 5 days are subject to 20% final withholding tax |
| Type of income | : | Subject to tax feature |
| Interest computation | : | Simple interest/Add-on |
| Manner of purchase | : | Through the BSP |
RRP as its definition connotes in substance a borrowing transaction collateralized by a security. The securities that serve as collateral are usually in the form of Treasury Bills Special Series or Fixed Rate treasury notes. RRP transactions would require the BSP to earmark securities with an equivalent face value to the amount borrowed, regardless of the tenor of the instrument collateralized.
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