Volume of TDF offerings hiked
THE CENTRAL BANK will substantially raise auction volumes for the term deposit facility (TDF) by December as the market remains awash with liquidity, with the weekly offerings still oversubscribed six months into implementation.
The Bangko Sentral ng Pilipinas (BSP) announced yesterday that the TDF auction volume will be hiked to P180 billion next month, a jump from the current P130-billion level.
This breaks the earlier pattern of a P20- billion increment implemented each month. Broken down, the size of the week-long tenor will be hiked to P30 billion from the current P10-billion level. Meanwhile, the month-long tenor — the preferred instrument of market players — will be increased to P150 billion from P120 billion.
The higher volumes will be placed on the auction block by Thursday, Dec. 1 with a shortened tenor at six and 27 days, owing to the Nov. 30 non-working holiday for Bonifacio Day.
This comes as yesterday’s auction again saw bids from banks and trust firms logging well above the total P130- billion offering, although yields ticked up from the past week.
The seven-day tenor fetched an average yield of 2.5232%, higher than last week’s 2.5229% after players sought for rates at 2.52.525% which the central bank must pay them for placing excess funds under the facility.
Banks and trust entities swarmed the week-long window with bids coming in at P29.598 billion, nearly triple the P10billion auction size.
Yields also went up for the 28day term deposits at a 2.7842% average, higher than last week’s 2.7371% as rates logged from 2.52.8%. Still, the P120- billion offering remained oversubscribed as bids stood at P207.302 billion, about 1.7 times the programmed volume.
Introduced on June 8, the TDF is currently the central bank’s main tool to capture excess money supply in the local financial system, which in turn is seen to bring market rates closer to its 3% benchmark.
Having an abundant supply of idle funds in the market drives borrowing rates down.
“The auction shows that the BSP facilities continue to be effective in mopping up excess liquidity in the system... The uptick in the auction average rates continued to be in line with price movements in the recent past auctions,” BSP Governor Amando M. Tetangco, Jr. said in a text message to reporters.
The central bank chief pointed out a decline in the tenders for the month-long term deposits from last week’s P232.177 billion bids, saying this could be due to “market positioning” ahead of funding requirements for the holiday season as the term deposits would be freed up only by mid-December.
The auction volume will remain at P130 billion for next Wednesday’s auction before surging to the P180- billion level by next month. The weekly TDF offerings started at just P30 billion six months ago, with central bank officials saying they are “gradually” raising the volume to give time for industry players to familiarize themselves with the new facility.
“We raised the auction size for both facilities for the December auctions as there is still a significant amount of liquidity flowing into our ODF (overnight deposit facility). Capturing more liquidity in the longer tenors would help us better manage liquidity in the system,” Mr. Tetangco added, referring to the standing facility where banks can also park funds on a daily basis.
The central bank is also holding off its plans to reduce the 20% reserve requirement imposed on universal and commercial banks as the local market remains awash with liquidity. Analysts have said that such a move can be expected by the first quarter of 2017.