BSP brings back 14-day TDF in auction this week

The Bangko Sentral ng Pilipinas (BSP) is returning the 14-day term deposit facility (TDF) on April 24, along with the 7-day tenor.

The BSP is still not offering the longerdated 28-day TDF, however, as they forecast continued low demand for it.

The 7-day or more precisely the 8-day on April 24 – after adjusting dates due to the two holidays of May 1 and June 12 – will be offered at billion. The 14-day will also be offered at billion.

The BSP decides on the volume of the TDF on a regular basis depending on liquidity demand. It has adopted a liquidity forecasting method that indicate how much of amount offered the market could take or require.

Last Wednesday, the BSP only offered one tenor or the 7-day TDF, at billion. It was oversubscribed at billion but the weighted average rate fell to 4.7764 percent compared to the previous auction’s 4.8943 percent.

The BSP offered only one TDF for the April 17 auction since they expect a much lower demand from banks during the Holy Week season. Previously, the BSP has removed the 28-day TDF on March 27 and it has not been returned yet, while the 14-day tenor was not in the auction last week.

The central bank plans to use a combination of debt instruments and TDF for a more effective monetary operations after it has restored its authority to issue what it will be calling BSP stabilization bonds.

BSP Deputy Governor Diwa C. Guinigundo has said that there is a need to distinguish between mopping up “big amounts” and keeping liquidity in the BSP for fine-tuning purposes.

Guinigundo said they are considering to set up the bonds for mopping up in bulk and the overnight bills is for finetuning market rates, and in between the overnight and a longer-dated tenor, is the TDF.

This framework will ensure that there will be no competition between the BSP and the Bureau of the Treasury, he said. “It will not result in a mutual crowding out, and the two instruments will not compete against each other even if they may have the same tenor,” said Guinigundo.

The amended New Central Bank Act which was signed into law last February 14 as Republic Act No. 11211, among other things, restored the BSP’s authority to issue debt papers during times when there are structural surplus liquidity.

The future BSP bonds is more market based as well negotiable and marketable, enabling the central bank to better manage liquidity and sustain price stability.