Banks snap TDF offering at higher yields in auction

Demand from banks and an increased volume of term deposits led to higher rates this week across all tenors offered by the Bangko Sentral ng Pilipinas (BSP).

Based on auction data, the BSP’s term deposit facility (TDF) attracted higher rates particularly on the 28days with 4.8549 percent, up from last week’s 4.7884 percent.

The longest-dated TDF had bids of 117.76 billion against offer of 110 billion. It was the only volume unchanged for the October 10 auction. The tenders were lower compared to last Wednesday’s 126.50 billion.

Both the 7-days and 14-days have higher volumes this week of 1 50 billion and 120 billion, respectively, versus last week’s 140 billion and 110 billion.

The 7-day tenor’s average rate rose to 4.7274 percent from last week’s 4.7127 percent, while tenders amounted to 173.28 billion, exceeding the offer of 150 billion.

The 14-days also fetched a higher yield of 4.7729 percent from 4.7353 percent. Bids totaled 133.22 billion versus offer of 120 billion.

Overall, offered at 180 billion, total bids reached 1124.26 billion on Wednesday. It was lower compared to the previous auction’s 1131 billion on a volume of 160 billion.

The auction-based TDF, one of BSP’s open market operation, is a liquidity-absorbing tool. Its highest offered volume was 1180 billion which was in 2016.

With the BSP’s tightening policy this year, liquidity forecasts are indicating that there is less excess liquidity to mop up every week through the TDF. Funds were either utilized for bank lending, or used to purchase US dollars for bank clients as well as for the repayments of loans.

The central bank’s Monetary Board recently increased benchmark rate anew by 50 basis points. The BSP has so far raised policy rate by a total of 150 bps since May this year.

While inflation management and the re-anchoring of inflation expectations are the main reasons for the policy rate adjustments, in considering rate hikes, the BSP took into consideration liquidity and credit growth conditions as well.

The Monetary Board continues to assess that both liquidity and credit growth conditions remain manageable. Domestic liquidity growth is at comfortable levels while bank lending growth is also manageable, in fact it has slowed down.

Commercial banks’ outstanding loans went up by 18.9 percent yearon-year in August, a slower pace of growth than the previous month’s 19.6 percent. Domestic liquidity also expanded slower in August, it was up by 10.4 percent year-on-year to 111.2 trillion compared to July’s liquidity growth of 11 percent.

As noted by the Monetary Board, TDF rates and other market interest rates have been increasing but this was expected and encouraged by the BSP.