Strong demand for term deposits to continue as BSP lowers volume
BANKS are expected to continue vying for term deposits offered by the Bangko Sentral ng Pilipinas (BSP), a senior official said, with the renewed demand and lower auction volumes to drive market rates closer to the 3% benchmark.
BSP Deputy Governor Diwa C. Guinigundo said the move to reduce the amount offered under the term deposit facility ( TDF) has helped usher market rates closer to the main policy rate, in keeping with the central bank’s goal.
Wednesday’s auction saw tenders reach P166.956 billion, surging from the P148.378 billion in bids received the previous week and logging well above the P140 billion which the BSP placed on the auction block.
Both the seven and 28- day tenors went oversubscribed this week. This is the first time in seven months, as the month-long term deposits last posted an oversubscription during the March 15 auction.
Banks wanted to place as much as P102.88 billion in the term deposits this week, slightly higher than the P100 billion which the central bank eyed to sell. This brought the average yield to 3.4925%, inching lower from previous week’s 3.4939%.
Wednesday’s result marked the second week of the lower TDF auction volume set by the central bank, which was reduced from a P110- billion offering in September.
“This is what we have been expecting from the reduction in the volume of 28-day TDF. Given the banks’ greater propensity to lend, buy foreign exchange to service the needs of their clients and invest in government securities, their placements with the BSP have declined. Thus, a reduction in the offered volume is warranted and this would help guide market rates closer to the policy rate,” Mr. Guinigundo said in a text message to reporters.
Prior to last month’s reduction, the central bank dangled as much as P150 billion in monthlong instruments weekly from December 2016 to April of this year.
Central bank officials have said that they regularly review liquidity dynamics before deciding on the auction amounts per week, in order to better reflect market conditions.
“Banks competed for the reduced volume and restrained their bids — thus, the oversubscription and lower bid rates. We expect this to continue given the
very robust credit growth,” Mr. Guinigundo added.
The TDF is currently the central bank’s main tool in mopping up excess money supply in the financial system, as the platform allows banks to park funds which they cannot deploy for loans for a small return.
Yields have risen to above 3% since the TDF was introduced, coming from an average of 2.5% when the weekly auctions started in June last year.