Shorter TDF tenors fetch higher rates at BSP auction
The 7-day and 14-day term deposit facility (TDF) attracted higher average rates this week – post Holy Week break – with banks oversubscribing the shorter TDF.
The Bangko Sentral ng Pilipinas (BSP) received total tenders of R124.31 billion. The TDF volume was back to R110 billion after the central bank cut its size by R20 billion before Lent, on March 28.
The 7-day TDF’s weighted average rate went up to 3.2657 percent compared to the previous week’s 3.1651 percent. Bids amounted to R65.133 billion, more than offer of R50 billion and from last Wednesday’s R46.485 billion.
The 14-day tenor also fetched a higher average rate of 3.3575 percent versus the previous week’s 3.2788 percent. Its auction were less than the offer of R40 billion, at only R29.935 billion.
The longest-dated TDF, in the meantime, had a slightly lower average rate of 3.4229 percent from 3.4232 percent, with tenders totalling R29.242 billion against offer of R20 billion.
The TDF was introduced on June 3, 2016, under the interest rate corridor (IRC) system.
The TDF is one of the BSP’s primary liquidity absorption facility to ensure there is no excessive money supply in the financial system, which tends to be inflationary.
In a recent report, the BSP said the IRC has strengthened monetary policy transmission.
It said that since launching the IRC system, the BSP has achieved “most of its goals” in adopting the framework.
“The BSP has shifted to more active monetary operations through the conduct of auction-based offerings which allowed for gradual migration of funds from overnight to longer-term deposits,” said the BSP.
“This has helped strengthen the monetary transmission mechanism in terms of the alignment between market interest rates and the BSP’s policy rate, with interbank call loan rates moving steadily within the corridor. Nevertheless, the BSP continues to review and assess the features of the IRC system for possible enhancements to ensure its effectiveness in transmitting the BSP’s monetary policy actions to the financial markets and the real economy,” the BSP added.