Demand for term deposits drops as trust entities withdraw funds

THE CENTRAL BANK’S auction of term deposits saw weak demand yesterday as both the weeklong and month-long tenors received bids below the amounts on offer just as trust companies withdrew their placements in the facility.

Tenders for Wednesday’s auction slumped to P127.463 billion, well below last week’s offers worth P161.678 billion and the P180-billion dangled by the Bangko Sentral ng Pilipinas (BSP). This pushed yields upward compared to a week ago.

Bids for the seven-day tenor dropped to P32.538 billion, which failed to fill the P40 billion which the central bank wanted to sell. As a result, the average yield clocked in higher at 3.0507%, rising from the 2.9904% fetched during the June 21 auction.

Demand for the 28-day term deposits also logged below the P140-billion auction size, as banks wanted to place only P94.925 billion. The BSP even had to reject over P10 billion worth of bids and only took in P84.125 billion as some banks asked for rates beyond the 3.5% ceiling set by the central bank.

The average rate stood at 3.4925%, up from 3.4889% the previous week as the lenders wanted to get margins between 3.4-3.5%.

The term deposit facility (TDF) is currently the central bank’s main tool to capture excess money supply in the financial system by allowing banks to place their idle funds with the BSP — those which are not utilized for loans or set aside as reserves — in exchange for a small return.

Yesterday’s auction also came ahead of the June 30 deadline set by the central bank for trust companies to remove their fund placements at the TDF, in line with the scheduled phase-out of their access to the platform.

Central bank officials have said that there has been an observed bias towards the shorter end, as market players do not want to lock in their funds for longer periods amid uncertainty, particularly on the next moves of the United States Federal Reserve.

For next week, the BSP kept the auction amounts steady at P40 billion for the week- long term and P140 billion for the 28day tenor.

Incoming BSP Governor Nestor A. Espenilla, Jr. has said that he will keep the BSP’s interest rate corridor scheme and the weekly term deposit auctions during his six-year term, signalling broad policy continuity as he inherits the post on Monday from Amando M. Tetangco, Jr., who leaves after a 12-year run as central bank chief.