Yield on 28-day term deposits goes up with reduced liquidity
YIELDS fetched for the Bangko Sentral ng Pilipinas’ (BSP) term deposits saw a minimal uptick yesterday after a higher bid was accepted under the longertermed tenor, a sign that the central bank has captured a bigger amount of liquidity in the financial system.
Wednesday’s term deposit offerings saw a 2.501% average weighted accepted yield for the 28- day term deposits, slightly higher than the usual 2.5% rate fetched since the weekly auctions started on June 8, results posted on the BSP Web site showed.
Still, the total P70-billion offer was oversubscribed.
Bids for the central bank’s auction of P10 billion worth of deposits with a seven- day tenor were more than four times above the program as banks and trust companies wanted a total of P48.035 billion, clocking in a 2.5% rate.
Meanwhile, bids for the 28-day tenor reached P151.879 billion, 2.531 times above the P60-billion offer. For the first time, accepted yields ranged from 2.5- 2.525%, which brought the average to 2.501%, slightly above the 2.5% floor rate under the BSP’s interest rate corridor (IRC).
The TDF is the central bank’s main tool to actively shore up excess liquidity in the financial system. Banks and trust companies ask for a certain rate which the BSP will pay for them to park their surplus funds with the central bank, which used to match the 2.5% overnight deposit rate under the IRC.
MARKET RESPONDING
A BSP official said the slight rise in accepted yields showed the market’s response to the new facility barely three months into its implementation.
“We are seeing the initial signs that the open market operations of the BSP under the IRC are beginning to bite. First, the bidto-coverage ratio has gone down from 5.86 on 8 June to last week’s 2.87 to today’s 2.53. This means oversubscription is declining and more funds are being mopped up by the BSP increasingly through the term deposit facility,” BSP Deputy Governor Diwa C. Guinigundo said in a text message to reporters on Wednesday.
“And second, interest rates are now beginning to inch up given the liquidity dynamics among the banks both in the interbank and with the BSP. We should see as a result of the IRC implementation market rates slowly moving towards the policy rate, signalling a more effective monetary policy.”
The higher rate fetched under the longer- termed deposits comes ahead of P90 billion worth of term deposits to be auctioned in the next two weeks, up by P20
billion from this week’s P70-billion offer.
By Aug. 31, banks and trust firms can vie for P80 billion under the monthlong tenor, while the volume under the week-long tenor will remain at P10 billion.
Monetary officials expect money market rates to trend closer to the central bank’s 3% benchmark rate once a sizeable amount of excess money supply is shored up under the TDF, as funds parked under the old special deposit account window are transferred to the new window.
Mr. Guinigundo earlier said that the BSP will consider trimming the current 20% reserve requirement for big banks during tighter liquidity conditions, although such tweaks will likely be “gradual” but constant in order to contain any backlash.
Economists have said they see the central bank holding off any monetary policy adjustments until next year without a need for fresh economic stimulus, but expect the BSP to further increase TDF auction volumes in order to arrest excess money supply and drive interest rates closer to the 3% policy rate.