BSP’s 3-tenor TDF is oversubscribed

The central bank’s auction of term deposit facility (TDF) yesterday attracted bids amounting to R150.75 billion versus offer and reward of R80 billion as banks compete for the shorter-dated TDF.

The debuting 14-day TDF received tenders worth R45.460 billion against offer of R20 billion. The Bangko Sentral ng Pilipinas (BSP) accepted a yield range of 2.7 percent to three percent and finally settling for a weighted average rate of 2.8737 percent.

“The oversubscription on all tenors despite the offering of the new 14-day TDF is a clear testimony that the banking system continues to experience substantial liquidity following the sustained return of money to the banks after the holidays and the NG’s (National Government) RTB (retail treasury bond) float,” according to BSP Deputy Governor Diwa C. Guinigundo yesterday. “Based on our forecasting exercises, we have now the basis to declare the introduction of new tenor namely the 14-day TDF.”

Guinigundo added: “The BSP is also more flexible in considering fast changing liquidity conditions in determining the appropriate volume of liquidity to mop up to help attain price stability while offering more instruments to the capital markets.”

The BSP announced yesterday that for the February 21 auction, it has raised the volume to R110 billion, broken down as: R50 billion for the 7-day, R40 billion for the 14-day and R20 billion for the 28day. This is an additional R10 billion for the 7-day and a bigger R20 billion for the new tenor.

The 7-days and 28-days, in the meantime, both had lower rates during Wednesday’s auction but were oversubscribed.

The 7-day TDF attracted bids of R65.362 billion against offer of R40 billion. The weighted average rate dropped to 2.7232 percent compared to the previous week’s 2.7278 percent.

The 28-days fetched a weighted average yield 2.9650 percent which was lower week-on-week from 3.0183 percent. The longer-dated tenor had bids amounting to R39.935 billion from a still modest R20billion offer size.

The BSP introduced a middle tenor or a second shorter-dated TDF to further refined its market-based approach to monetary operations. It said the market has a “strong interest” in a 14-day tenor.

The central bank just brought back the 28-day TDF last February 7 after discontinuing its offer on December 20 because of consistent undersubcriptions. The market was sidelined from bidding in the longer-dated tenor since funds were diverted for the most part to bank lending, to purchase foreign exchange for import requirements, to prepay loans, among other reasons.

The deposit facilities serve as a monetary policy instrument for managing domestic liquidity in the financial system, and it came with the interest rate corridor framework which the BSP adopted in June 2016.

Guinigundo remarked previously that liquidity has gradually returned to the market and offering additional tenors will ensure “appropriate level of domestic liquidity and price stability.”

It is a normalization process that the central bank has encouraged since this will enable them to better calibrate open market operations.