TDF rates down; more bids than offer

Banks bid 192.15 billion of term deposit facility (TDF) during the Bangko Sentral ng Pilipinas’ (BSP) Wednesday auction, more than offer of 170 billion.

The offer is lower than 190 billion a week ago. TDF rates also fell this week, tracking key rates which were reduced by 25 basis points (bps) last September 26 by the Monetary Board.

The auction for the 7-day tenor offered at 130 billion, had 134.27-billion tenders. The average rate dropped to 4.2501 percent from 4.3589 percent last September 25.

The 14-day TDF with a lower offer of 120 billion from last week’s 130 billion, attracted 130.83 billion. The rate also fell to 4.2547 percent from 4.4391 percent.

The 28-day tenor was offered at 120 billion versus 130 billion last week. Bids amounted to 127.04 billion while average rate declined to 4.3039 percent from 4.4577 percent last week.

The BSP cut policy rate by 25 bps last week, bringing to 75 bps total reduction for 2019.

BSP Governor Benjamin E. Diokno said the benign inflation outlook “provides room for a further reduction in the policy rate to support economic growth and reinforce market confidence.”

A day later, the Monetary Board also cut banks’ reserve requirement ratio (RRR) by another 100 bps to be applied first week of November. This will release an additional 1100 billion to previous RRR reductions which totaled 200 bps.

The RRR for big banks is reduced by one percent to 15 percent, also for thrift banks and rural banks which will have a new rate of five percent and three percent respectively.

The first 200 bps, by BSP estimates, released 1200 billion of fresh funds into the financial system. The first RRR series of cuts will be reflected in the August and September domestic liquidity and bank lending data.