Term deposits met with strong investor demand
DEMAND for week-long term deposits continued to climb to reach more than triple the amount offered by the central bank yesterday, driving yields lower as market liquidity normalizes after the holidays.
Banks wanted to place as much as P127.119 billion as term deposits under the Bangko Sentral ng Pilipinas ( BSP) on Wednesday, climbing from P95.55 billion the previous week and more than triple the P40 billion on offer.
Yields on these instruments also dropped amid overwhelming demand to average at 3.2223%, coming from a narrow range of 3.15- 3.25%. This spells a sharp drop from the 3.3654% fetched a week ago.
Yesterday’s turnout sustains a steady pickup in demand for the third straight week, accompanied by declining rates sought by banks.
The term deposit facility (TDF) is currently the central bank’s primary tool to mop up excess funds in the financial system. The window allows banks to park the idle cash they hold under the BSP in exchange for a small margin, which is determined through weekly bids hosted by the central bank.
Through this process, the BSP expects to bring market rates closer to the 3% benchmark borrowing rate, coming from below the 2.5% floor of the interest rate corridor when the TDF auctions started in June 2016.
BSP Deputy Governor Diwa C. Guinigundo said the recovering demand for TDF placements showed that “significant liquidity” is returning to the banks after the holiday season.
“We also see continued disbursement by the government to fund its normal current operations as well as capital spending especially for infrastructure projects. Hence, banks are now awash with liquidity,” Mr. Guinigundo said in a text message to reporters.
Despite the rebound in money supply, the central bank still kept next week’s auction limited to the week- long tenor for the fifth consecutive time. Another P40 billion worth of seven- day instruments will be offered on Wednesday.
“We are therefore witnessing the gradual normalization of liquidity conditions. The BSP does not want to interfere with this process by bringing back liquidity into its deposit facilities at this transition stage,” Mr. Guinigundo added.
He noted that the BSP still sees “sustained high demand” for loans, foreign exchange, offshore investments and debt payments in the market.
The BSP stopped offering 28-day term deposits on Dec. 20 as market players preferred the week- long instruments as they anticipate a seasonal spike in demand for cash as Filipinos spend more for celebrations and giftgiving activities for Christmas and New Year.
Mr. Guinigundo has said they will restore the 28-day tenor “in due time” as they monitor emerging money supply dynamics. He added that the central bank is also looking to introduce a new tenor for term deposits, which would likely be longer than a week but shorter than a month.