Yields on term deposits inch up despite strong investor demand
YIELDS on term deposits offered by the Bangko Sentral ng Pilipinas (BSP) inched higher yesterday despite strong demand, which comes ahead of the release of additional money supply due to lower bank reserves.
Banks wanted to place as much as P130.488 billion under the term deposit facility ( TDF) on Wednesday, higher than the central bank’s P110-billion offering although lower than the P150.757 billion tenders posted a week ago.
All three tenors offered by the central bank stood oversubscribed, with bids matching the amounts set by the monetary authority.
Players wanted to park P53.368 billion with the BSP under the seven- day term, slightly higher than the P50- billion volume. Despite the bigger amount, the average yield climbed to 2.8164% from 2.7232% during the previous auction.
The 14-day tenor likewise remained a viable option for market players, with the P40 billion volume met by P46.765 billion tenders. This is the second time when the BSP offered two-week term deposits.
Still, the average rate sought by banks climbed to 2.9798% from 2.8737% previously.
Demand for the 28-day term deposits also went beyond the P20- billion offer, with banks willing to park as much as P30.355 billion under the window. The amount, however, declined from the P39.935 billion bids a week ago.
The average yield for the month-long instrument also rose to 3.0258%, coming from the 2.965% fetched last week.
The TDF is the central bank’s main tool to shore up excess funds in the financial system. The window allows banks to park the idle cash they hold under the BSP in exchange for a small return, which in turn will prompt market rates to inch closer to the three percent benchmark set by the central bank.
Any excess cash which have not been deployed for loans, foreign exchange and debt payments can be parked under the central bank window in order to make small gains, rather than leave these idle inside bank vaults.
For next week, the BSP will offer another P110 billion to banks, with the volume for each tenor also retained.
Central bank officials said last week that they will now be focusing on “auction- based” monetary operations, as it introduced a one percentage point cut in the reserve requirement ratio (RRR) imposed on universal and commercial banks.
The BSP has dubbed the RRR cut as an operational move, which will take effect March 2.
“We now have the corridor system pretty much in place and we do have the available instruments to address any impact of that reserve requirement (cut),” BSP Managing Director Francisco G. Dakila, Jr. told reporters last week.
Mr. Dakila said the reserve cut will unleash some P90 billion into the financial system, which they expect to be mopped up through the TDF and other policy tools.
Domestic liquidity expanded by 11.9% in December to reach P10.6 trillion, according to latest available central bank data.