BSP raises 7-day term deposit offer as demand stays strong
MARKET PLAYERS continued to vie for week-long instruments during yesterday’s auction of term deposits, prompting the central bank to raise the amounts offered under the shorter tenor to respond to overwhelming demand observed during the past weeks.
Total offers under the term deposit facility ( TDF) reached P180.615 billion, although more than a third of the funds crowded the seven-day tenor on Wednesday.
Bids for the seven- day term deposits reached P66.502 billion, which is more than double the P30 billion offered by the Bangko Sentral ng Pilipinas ( BSP) and soared from the P41.342 billion in total tenders received during last week.
With the strong demand, banks and trust firms asked for lower returns in order to make their bids more competitive. The average yield stood at 3.3068%, coming from a 3-3.4% range and down from the 3.3615% average rate seen during the April 19 auction.
On the other hand, bids for the 28-day term deposits remained below offer for the sixth straight week at P114.113 billion, against the P150 billion which the central bank placed on the auction block.
Despite the undersubscription, the BSP still rejected some offers as the rates sought were beyond what the monetary authority was willing to pay.
As a result, the BSP only awarded P113.113 billion worth of term deposits with the average yield at 3.4471%, also ticking lower than last week’s 3.4565%.
The TDF is currently the central bank’s primary tool to capture excess money supply in the financial system by allowing financial firms to place their idle money under the facility in exchange of a small margin.
Through this, the BSP eyes to bring market rates closer to its 3% benchmark rate and spur interbank lending.
BSP Governor Amando M. Tetangco, Jr. said the central bank decided to tweak the auction volumes for next week to “respond to market preference.”
“The stronger demand for the seven days over the 28 days indicates a preference for the shorter tenor which offers rates close to 3.5%. It’s attractive for banks to receive the seven- day rate and have their funds back after a week,” Mr. Tetangco said in a text message to reporters.
The BSP chief also pointed out the lower rates fetched this week: “[T]he drop in both averages indicates a normalization of conditions with the Holy Week, tax season and RTB (retail Treasury bonds) out of the way.”
By May 3, the BSP will auction off P40 billion under a seven-day term and P140 billion for the month- long tenor, which is a slight adjustment from the current mix of P30 billion for the week-long term and P150 billion for the longer-dated instruments. The total, however, remains at P180 billion for the sixth straight month.