BSP eyes higher TDF volume after reserve ratio hike

THE Bangko Sentral ng Pilipinas (BSP) might increase the volume of its term deposit auction after the 1-percentage point reduction in banks’ reserve requirement ratio (RRR) it made last week takes effect later this week, its chief said late Monday.

Once the new 18-percent RRR is implemented on Friday, an estimated P90 billion in reserves will be freed up, BSP Governor Nester Espenilla Jr. told reporters.

The RRR is the proportion of current deposits that banks need to keep with the central bank against the sum they can loan to borrowers.

The new RRR, which banks have long pushed for, would allow them to extend more loans and the central bank to gradually reduce its reliance on reserve requirements for managing liquid-

“Around the time when the reserves are released on June 1, we will probably increase our volume net of what we see” is the system’s requirement at the moment, Espenilla said.

The central bank determines the volume for its weekly term deposit auction through liquidity forecasting.

“So we forecast from the BSP in terms of what is the liquidity requirement of the system taking into account what the government [and] banks will do, and what the public will require,” Espenilla said.

“So on that basis, we estimate how much liquidity or how much is enough on a short-term basis. That is why you should not be surprised [ that] sometimes we increase the volume [and] sometimes we decrease,” he added.

The term deposit facility (TDF) is a liquidity-mopping tool introduced by the BSP after adopting the interest rate corridor last June. It aims to improve the cen-

rates and ultimately enhance monetary policy.

Last week, the BSP cut the TDF volume from P120 billion to P110 billion for the May 30 auction.

For the 28- day facility, the weekly offering will be trimmed from P40 billion to P20 billion.

The seven-day facility and 14day tenor will be kept at P50 billion and P40 billion, respectively.