TDF demand drops with just two tenors on offer

DEMAND FOR term deposits slipped this week as the central bank didn’t offer any onemonth papers, although yields continued to drop for the shorter instruments.

Bids for the term deposit facility (TDF) went down to P66.349 billion on Wednesday from the P95.029 billion received last week, but still higher than the P40 billion which the Bangko Sentral ng Pilipinas (BSP) wanted to sell.

The lower bids came as the central bank stopped offering the 28-day tenor to give way to the settlement of retail Treasury bonds offered by the national government.

The Treasury raised P235.935 billion from the sale of five-year debt notes to the public, which were settled on Tuesday.

Banks offered to place P34.296 billion under the sevenday term, down from the P42.285 billion in tenders received a week ago although still well above the P20 billion which the BSP looked to sell.

Despite this, market players asked for lower yields from a narrow 4.89-5.05% range to average 5.0214%, a tad lower than the 5.0342% fetched a week ago.

The same trend was observed for the 14-day placements, with demand settling at P32.053 billion, lower than the P33.516 billion fetched last week, but still higher than the P20 billion on the auction block.

The TDF remains the central bank’s main tool to shore up excess cash in the financial system. Through the weekly auctions, the BSP wants to bring market and interbank rates closer to their desired range through the yields which they accept.

Banks had been parking more funds under the TDF since the Monetary Board voted to keep interest rates at the 4.25-5.25% range during the Feb. 7 meeting, which is also used as the benchmark for term deposit rates.

New BSP Governor Benjamin E. Diokno said on Tuesday that “there is room” to reduce interest rates amid declining inflation, alongside plans to cut the reserve requirement ratio (RRR) for banks.

Mr. Diokno said the current 18% RRR is “very high,” and hinted at possible successive reductions worth one percentage point every quarter for the next four quarters.

Every one percentage point decline in the RRR would unleash around P100 billion to the economy, which can be deployed to additional lending and will therefore reduce the cost of borrowing money.

However, BSP Deputy Governor Diwa C. Guinigundo said there continues to be enough liquidity in the system.

“Still shows system is liquid, banks have enough surplus funds to place with BSP,” Mr. Guinigundo said via text message.