Banks flock to BSP’s TDF despite cuts in volume offered this week

Rates in the Bangko sentral ng Pilipinas’s (BsP) liquidity facility continued to fall on Wednesday, as banks bid more than what is offered in the Central Banks’ term deposit facility (tDF) during the week.

Both the rates in the sevenday and 14-day facility of the BSP went down during the week, with the medium tenor registering the bigger drop on Wednesday.

In particular, the yield in the 14-day facility hit 5.0975 percent during the week, dropping from the 5.1452 percent seen in the previous week’s auction.

For the seven-day facility, the rate likewise dropped from 5.0342 percent in the previous week to 5.0214 percent on Wednesday.

The TDF is one of the BSP’s liquidity absorption facilities to manage circulation in the economy.

As banks bid to park funds in the BSP’s facility, the TDF effectively siphons off a part of this structural liquidity from the financial system to bring market rates closer to the BSP’s main policy rate.

Banks displayed strong appetite in the two tenors offered by the BSP for the week, with both windows being oversubscribed on Wednesday.

The total bids for the seven-day tenor, in particular, hit P34.396 billion, while the 14-day facility for a total of P32.053 billion in tenders. The BSP offered both the P20 billion in term deposits for the seven-day and the 14-day tenors during the week.

Since the start of the year, banks have been showing sustained interest in the BSP’s TDF, with bouts of oversubscription every week. For 2019, the BSP has only increased its volume of offering once—in the first week of January—from P30 billion to the current P50 billion offered.

For this week, however, the BSP opted not to offer any 28-day term deposits to banks.

Earlier this month, BSP Deputy Governor Diwa C. Guinigundo said that the oversubscription in the weekly TDF is an indicator that there continues to be “ample liquidity” in the local stream.