Banks swarm auction for P120-B term deposits

Liquidity in the financial system remains as banks continued to swarm the term deposit facility (TDF) auction, according to the Bangko Sentral ng Pilipinas.

BSP Deputy Governor Francisco Dakila Jr. said banks continued to park excess funds in the liquidity absorption facility as bids reached P242.05 billion or twice the increased volume of P120 billion.

“(The) auction results show that the domestic financial market remains calm amid ample liquidity even as the enhanced community quarantine measures in the National Capital Region was eased slightly on May 16,” Dakila said.

The central bank has yet to resume the auction of 14 and 28-day term deposits to encourage banks to lend excess funds to individuals and companies, particularly micro, small, and medium-scale enterprises (MSMEs) affected by the health crisis. It resumed the auction, but limited to the seven-day tenor last April 15.

The central bank suspended the weekly TDF starting March 18 to address the liquidity needs of banks after Malacañang imposed a Luzon-wide enhanced community quarantine.

“For its part, the BSP will continue its assessment of prevailing liquidity conditions in the financial system in determining the appropriate size and tenors of its TDF auction,” Dakila said.

The yield of the seven-day tenor slipped further, easing by 0.35 basis points to 2.2543 percent from last week’s 2.2578 percent.

The yield of the seven-day tenor continues to reflect the impact of the recent measures by the BSP to boost market liquidity as well as indicative of a broader increase in market appetite for BSP instruments and government securities.

The BSP slashed interest rates by another 50 basis points during its first ever off-cycle meeting last April 16, bringing the overnight reverse repurchase rate to an all-time low of 2.75 percent.

This brought to 125 basis points the total reduction in benchmark rates this year to boost market confidence and soften the blow of the novel coronavirus disease 2019 or COVID-19 pandemic.

Likewise, the BSP also lowered the reserve requirement ratio by 200 basis points on March 30, releasing P200 billion into the financial system to allow banks to lend more to businesses and individuals affected by the global virus outbreak.