TDF offers kept steady despite weak demand

THE CENTRAL BANK kept auction volumes steady for the ninth straight month even as the weekly auctions stood undersubscribed, amid expectations that banks will deploy excess funds for productive lending rather than keep them parked under the facility.

Bids for yesterday’s term deposit auction posted a slight recovery to P141.24 billion, rising from last week’s P124.38 billion but still logged below the P180billion offer of the Bangko Sentral ng Pilipinas ( BSP). As a result, rates saw mixed movements for the week- long and month- long instruments.

Banks offered to park P35.05 billion in the seven-day term deposits on Wednesday, lower than the P35.238 billion in tenders received the previous week and again logging below the P40 billion that the central bank wanted to sell.

With the lower amount of bids, rates climbed to 3.308% from 3.2597% the previously, as the banks sought margins ranging from 3.15-3.45%.

Meanwhile, offers for the 28day tenor picked up to P106.19 billion from P89.142 billion previously, but still failed to fill the P140 billion on the auction block. Banks asked for yields ranging from 3.425-3.5%, hovering close to the BSP’s ceiling rate.

The TDF is the central bank’s primary tool to arrest excess money supply in the financial system by allowing banks to place their extra funds with the BSP — or those which are not used for loans or set aside as reserves — in exchange for a small return.

Only banks can participate in the weekly central bank auctions since July, as the one-year window given to trust firms was closed effective June 30.

BSP Deputy Governor Diwa C. Guinigundo said the latest auction results show banks are more inclined to channel their money supply to lending activities than parking these funds under the BSP’s facility.

“TDF results continue to demonstrate that one, banks have been funding more loans and investment in government securities and two, short- dated placements are preferred by the market. This is after all expected by the BSP because we want excess funds of the banks to be channeled to financing productive economic activities including infrastructures,” Mr. Guinigundo said in a text message to reporters.

Despite the trend of under subscription, the central bank chose to keep the auction volume at P180 billion for its Aug. 2 offering, which is the ninth straight month since the amount was set in December.

BSP Governor Nestor A. Espenilla, Jr. said the central bank cannot simply decide to adjust TDF settings “week per week,” while noting that the Monetary Board will assess liquidity conditions as it reviews monetary policy settings on Aug. 10.