TDF still oversubscribed; rates up

The auction of term deposit facility (TDF) attracted higher bids and rates during Wednesday’s deals, based on Bangko Sentral ng Pilipinas (BSP) data.

The 14-day tenor – first offered on February 14 – had a bigger offer size this week of R40 billion compared to its debut of R20 billion. Banks put in R46.765 billion and raised the weighted average rate to 2.9798 percent compared to the previous week’s 2.8737 percent.

The 7-day TDF also had a higher volume this week of R50 billion, up R10 billion from last Wednesday. Tenders amounted to R53.368 billion while its weighted average rate increased to 2.8164 percent from 2.7232 percent.

The longer-dated 28-day is the only tenor that retained its offer size of R20 billion. It had bids worth R30.355 billion which was lower than the previous week’s R39.935 billion. Its weighted average rate went up to 3.0258 percent from 2.9650 percent.

The BSP announced yesterday that it will offer the same volume on February 28, of R110 billion.

The auction overall attracted bids amounting to R130.488 billion against offer of R110 billion.

BSP Deputy Governor Diwa C. Guinigundo has said that the oversubscription is an indication that there is substantial liquidity in the financial system and that they are ready with monetary policy tools to manage any excess liquidity.

The central bank on February 15 reduced banks’ reserve requirement ratio (RRR) by one percentage point or from 20 percent to 19 percent to “lessen its reliance on reserve requirements for managing liquidity.”

Slashing the reserves ratio will enable banks to have more funds or liquidity which the BSP said will support economic activity and the capital market development.

The last time the Monetary Board moved RRR was in May 2014 when it was increased to 20 percent as a tightening monetary action.

With the adoption of the interest rate corridor framework in 2016, the BSP refined its monetary instruments such as the introduction of the TDF, and with the intention of reducing the RRR.

RRR are required reserves against deposit and deposit substitute liabilities of banks. A 100 basis points reduction or one percentage point will release about R90 billion in the system.