BSP trims offering for month-long term deposits

THE BANGKO Sentral ng Pilipinas (BSP) trimmed its offering for month-long term deposits for November amid pale demand for the longer-termed instruments, with authorities noting that excess liquidity is on a decline.

Bids for Wednesday’s term deposit facility (TDF) fell short of the P140 billion which the BSP wanted to sell as it settled at P116.555 billion, which is likewise lower than the P131.455 billion offers from the previous week.

As a result, yields saw mixed movements for the two tenors but remained broadly steady.

Banks simply matched the P40 billion which the central bank offered under an eight-day term with total demand settling at P40.868 billion, lower than the previous week’s P43.893 billion. This pushed yields sideways to average at 3.3546%, although slightly higher than the 3.3402% fetched during the Oct. 18 auction.

The BSP added a day for the week-long instrument in observance of the All Saints’ Day holiday on Nov. 1, with next week’s auction to be held on Thursday instead.

On the other hand, banks shied away from the 28-day term deposits as demand settled at P75.687 billion, slipping further from the P87.562 billion in tenders received last week and again logging below the P100 billion offered by the central bank.

This even drove the average rates sought by banks down to 3.4925%, from the 3.4927% tallied a week ago.

The TDF is the central bank’s main tool to capture excess money supply in the financial system by allowing banks to park funds which they cannot deploy for loans in exchange for a small return.

The tepid demand for TDF instruments observed over the past few weeks prompted the central bank to reduce the weekly offering to P130 billion by Nov. 2, as they opted to cut the amount under the 28-day tenor.

BSP Deputy Governor Diwa C. Guinigundo said they trimmed the weekly auction volume given the shrinking amount of idle funds in the financial system.

“We continue to see the impact of excess, but smaller, liquidity in the market on both subscription and interest rates pertaining to TDF 7 and 28 days,” Mr. Guinigundo said in a text message to reporters.

The BSP official said banks have instead chosen to deploy the extra cash to lending, foreign exchange operations, and on investments, leaving little for the BSP to “mop up.”

On Nov. 2, the central bank will auction P40 billion under a sixday term and P90 billion with a 27-day maturity, with the shorter tenors reflecting the rescheduled offering.

Mr. Guinigundo also noted market preference towards the week- long instruments: “The market remains biased in favor of shorter tenor in the face of possible US Fed interest rate hike and lingering geopolitical uncertainty.”

Market players are pencilling in a fresh rate hike from the US Federal Reserve this December, which is expected to drive global yields up.