BSP to offer 28-day deposits anew next week amid liquidity
THE CENTRAL BANK will revive month-long term deposits this month, as overwhelming demand for the seven-day tenor continued to fetch lower yields during this week’s auction.
Banks again swarmed the seven-day term deposits offered by the Bangko Sentral ng Pilipinas (BSP) yesterday, which drove average rates lower for the seventh straight week.
Demand for the week- long instruments reached P116.634 billion, a tad below the P119.582 billion tenders received during the Jan. 24 auction and nearly triple the P40 billion which the central bank wanted to sell.
The strong appetite for the week- long term deposits drove rates to slip further to average 2.7785%, lower than the previous week’s 2.9256% as banks asked for returns from a narrow range of 2.7-2.85%.
The term deposit facility (TDF) is currently the central bank’s main tool to capture excess liquidity in the financial system. The window allows banks to park the idle cash they hold under the BSP in exchange for a small margin, which in turn will prod market rates to move closer to the three percent benchmark set by the central bank.
For next week, the central bank will reopen the 28-day tenor with a P20-billion offering. This is lower than the P40 billion when the month-long term was last offered on Dec. 13.
This brings the auction volume next week to P60 billion, coupled with another P40 billion worth of week-long instruments.
BSP Deputy Governor Diwa C. Guinigundo said market players have expressed interest in the 28day term as they now have more cash to spare coming from some tightness in supply last December.
“We are seeing the return of liquidity to the banks after the holiday season and the impact of the sustained release of public funds for infrastructure and other social projects,” Mr. Guinigundo said in a text message to reporters.
“The BSP has more liquidity to bring back to its TDF facility on top of the overnight deposit facility and the RRP ( reverse repurchase) facility and in the process ensure appropriate level of domestic liquidity and price stability. Hence, a gradual adjustment in the TDF volume was announced.”
Mr. Guinigundo said the BSP is in talks with banks to possibly introduce a new tenor for the TDF. Some analysts said a 14-day length may be the viable option, as market players continue to prefer short-term instruments as it provides accords greater flexibility in deploying these funds.
As practiced, any excess cash which have not been deployed for loans, foreign exchange and debt payments are parked under the central bank window in order to realize gains, rather than leave these idle inside vaults.
The BSP Monetary Board has kept its policy stance unchanged since September 2014, although procedural changes were introduced in June 2016 for the shift to an interest rate corridor. Benchmark rates currently range from 2.5-3.5%.
Analysts have been flagging the need for the central bank to tighten rates to keep up with rising inflation and contain the buildup of risks in the financial system.