BSP wants gradual buildup of bank liquidity

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo yesterday said they would prefer banks to have enough time to normalize liquidity conditions before bringing back the 28-day term deposit facility (TDF) to the weekly auctions.

“As we indicated two weeks ago, liquidity is coming back to the banks,” said Guinigundo. He also observed that this volume of liquidity is “significant.”

“As to our plans for the 28-days (TDF), this is something that is part of our monitoring. Timing is essential here,” Guinigundo said. The auction of the 7-day TDF – the only tenor still offered by the BSP after temporarily scrapping the 28-days last December 20 – continue to have tighter competition and reduced rates.

The entire R40-billion offer was awarded on Wednesday and tenders amounted to R127.119 billion which was more than the previous week’s R95.55 billion. The BSP awarded the lone tenor at a yield of 3.15 percent to 3.25 percent. The weight- ed average accepted yield was 3.2223 percent, down from last week’s 3.3654 percent.

Guinigundo said one of the reasons why the banking system are now “awash with liquidity” is due to government disbursement operations for its funding and capital spending, particularly for infrastructure projects. “At the same time, we also see sustained high demand for loans, foreign exchange for imports, outward investments and debt amortization. We are therefore witnessing the gradual normalization of liquidity conditions,” he added.