BSP’s TDF auction fetches higher rates

The central bank’s term deposit facility (TDF) auction fetched higher rates this week – all three tenors – while subscription results were mixed.

The 7-days’ average yield rose to 3.4397 percent from 3.3967 percent previously, while 14- and 28-day rates increased to 3.4648 percent and 3.4574 percent respectively, from last week’s 3.4370 percent and 3.4097 percent.

The Bangko Sentral ng Pilipinas (BSP) cut the auction volume this week to P90 billion from P110 billion. The shortest tenor attracted tenders amounting to P47.03 billion versus offer of P40 billion, while the 14-day TDF had P31.29 billion against a P30-billion offer.

The 28-days received P17.93 billion from an offer size of P20 billion.

BSP Governor Nestor A. Espenilla Jr., in a forum hosted by the American Chamber of Commerce of the Philippines, said the TDF auction, one of its main open market operations, is a useful tool for monetary control.

The TDF was first adopted in 2016 when the BSP shifted to the interest rate corridor (IRC) system. Espenilla said the IRC has given them “sufficient flexibility” to depend on auctionbased instruments to manage liquidity and “to complement our workhorse overnight reverse repurchase borrowings at our declared policy rate.”

“We can adjust monetary conditions by adjusting auction volumes to move our marketdetermined TDF rates,” he said. “This has effectively allowed us a channel to provide guidance to short-term market interest rates. In recent months, we have seen a firm anchoring to the BSP’s interest rate corridor as market rates strongly trended upwards.” He cited as example the performance of the 91-day Treasury Bill rate which has increased over 100bps since December last year.

“Our active domestic open market operations interact in close coordination with foreign exchange market operations, adjustments to reserve requirements, systemic macroprudential measures and riskbased supervision of individual banks,” added Espenilla. Thus, he reiterated that “BSP actions remain timely and appropriate to dynamic market conditions. These actions help regulate the economy and control inflation (but) the signal will be continuously reinforced by other BSP actions, as deemed necessary by developments.”