BSP sets 130-B maiden term auction

The Bangko Sentral ng Pilipinas (BSP) yesterday announced that it will offer 130 billion for its term deposit auction facility (TDF) in its maiden auction on June 8.

The BSP said it will have a volume of 110 billion for the 7-day tenor and 120 billion for the 28-day tenor offering.

While the auctions will be limited for the 7-day and 28-day maturity, the central bank has made it clear that it will be flexible to offer longer-dated deposits in the future.

BSP Deputy Governor Diwa C. Guinigundo said that auction volume will gradually be increased to “enable convergence of market interest rates to the BSP policy/target rate. (In) terms of results, the impact on money market rates will be small in the initial stage.”

The size of the auction will be determined by the BSP’s liquidity forecast and it will be “small at first,” said Guinigundo. The auction type will be variable-rate tender, multiple price auction based on bid pricing. The minimum bid amount is 110 million and there will be a maximum bid amount of 20 percent of auction size per tenor. Bids start at 9:30 a.m. but actual auction will begin at 10 a.m.

The TDF auction will be held every Wednesday initially. Guinigundo said if there is a demand later on for more auction schedules, they will consider it even up to three times a week.

The central bank will shift to IRC on June 3 to help “enhance the link between the stance of BSP monetary policy and financial markets and, thereby, impact the real economy.”

The IRC is a system for guiding short-term market rates towards the BSP policy interest rate which is the overnight reverse repurchase (RRP) rate.

With the IRC system the BSP reformed its open market facilities by the introduction of the standing liquidity facilities, namely, the overnight lending facility and the overnight deposit facility, the overnight RRP facility, and the TDF.

The interest rates for the standing liquidity facilities form the upper and lower bound of the corridor while the overnight RRP rate is set at the middle of the corridor.

The rates for these facilities will be set at 3.5 percent in the overnight lending facility, three percent for the overnight RRP rate and 2.5 percent in the overnight deposit facility.

“In conducting monetary operations, the BSP will calibrate carefully the volume of the TDF offerings to achieve a smooth transition to the new system,” the BSP said earlier.