Strong TDF demand lifts yields and bids

Banks picked up the demand for the central bank’s term deposit facility (TDF) with all three tenors fetching higher rates and oversubscribed tenders.

The TDF – offered at R100 billion total – attracted bids of R125.157 billion, higher than R92.636 billion last week.

Data from the Bangko Sentral ng Pilipinas (BSP) show that the 7-day TDF received tenders of R58.556 billion, more than the previous week’s R45.831 billion and more than offer of R40 billion. The average rate rose to 3.7779 percent from 3.7523 percent.

The 14-day tenor – also offered at R40 billion – had more demand with tenders amounting to R44.335 billion versus the previous Wednesday’s R31.990 billion. Yields increased to 3.9309 percent from 3.8689 percent.

The longer-dated 28-days, which was undersubscribed in past weeks, saw more action this week with R22.266 billion against offer of R20 billion. It is higher compared to last week’s R14.815 billion. The average rate was up at 3.9442 percent from 3.8471 percent.

The TDF is a BSP tool intended for liquidity management, and after a year of adoption, paved the way for the central bank to reduce banks’ reserve ratio this year. 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 implementation of the interest rate corridor (IRC) system in 2016 has enhanced monetary policy transmission and it also strengthened efforts to expand the local money market.

Basically, the IRC system ensures that money market interest rates will move within a “reasonable range around the BSP’s policy rate”

The TDF also encourages the establishment of benchmarks for short-term interest rates.