Demand for BSP’s term deposits surges
DEMAND for term deposits surged yesterday accompanied by a rise in yields, as banks’ appetite for the instruments recovered following a rate hike introduced by the central bank last week.
Rates inched higher across all tenors as players scrambled to get hold of term deposits offered by the Bangko Sentral ng Pilipinas (BSP) on Wednesday, resulting in marked oversubscriptions.
Banks wanted to get hold of as much as P130.526 billion worth of termed papers, well above the P80 billion which the central bank wanted to sell. The bids also soared from P92.125 billion tenders received last week versus a P60-billion offer.
Bids for the seven-day tenor soared to P64.095 billion, rising from the P53.025 billion posted a week ago and 1.6 times higher than the P40 billion on the auction block.
Despite the overwhelming bids, rates sought by banks inched higher to average 3.5123% compared to 3.4273% fetched during the May 9 auction. The BSP accepted rates ranging from 3.385%3.6274%, just as benchmark rates rose by 25 basis points following the Monetary Board’s decision on Thursday.
The BSP tightened policy settings last week as inflation continues to trend higher, as it now expects prices to maintain its ascent until the end of the year.
The 14-day term deposits also received strong demand at P44.696 billion, surpassing the P30-billion offer and surging from last week’s P33.005 billion tenders. Still, the average yield inched higher to 3.5855%, some 13 basis points higher than last week’s 3.4551%.
Lenders also betted to place P21.735 billion in 28-day deposits, rising fourfold from the P6.095 billion offers last week and more than double the P10 billion which the BSP wanted to sell. This, in turn, pushed the average rate to 3.4979%, inching up from 3.4732% a week ago.
The term deposit facility (TDF) is the central bank’s main tool in shoring up excess money supply in the local financial system. The BSP actively tweaks auction amounts each week in order to bring market and interbank rates within its desired spread, which currently ranges from 2.75-3.75%.
“The banks are still reportedly calibrating their bids in terms of rates given the shift in monetary stance,” BSP Deputy Governor Diwa C. Guinigundo said in a text message.
He also noted that the marked recovery in bids also reflect the “normalization” of bank liquidity following recent holidays, which had lenders choosing to hold more cash to service client demand.
Higher dollar flows from foreign portfolio investments also armed banks with more money to deploy, Mr. Guinigundo added.
It remains to be seen whether the strong demand for TDF placements can be sustained, as banks need to balance this with demand for liquidity for imports, debt servicing, and even foreign currency holdings, the central bank official said.
Next week, the BSP will hike its offerings under the TDF to P120 billion — P50 billion in the seven-day deposits, P40 billion for the 14-day, and P30 billion for the month-long term.