BSP plans to increase term deposit auction volume

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. yesterday said there is more scope to adjust its weekly term deposit facility (TDF) auction to encourage demand for the interest-bearing policy tool.

“There is room to further increase the auction size going forward so that more funds could migrate from the ODF (overnight deposit facility) to the TDF,” said Tetangco.

Tetangco added that in time, they will have the flexibility to lower banks’ reserve requirement ratios (RRR) with an effective migration of funds. “An adjustment in the RRR can be considered down the road when, among others, more funds have migrated to the TDF and if credit conditions warrant.”

Reducing the RRR – currently at 20 percent – will release additional liquidity into the financial system.

During Wednesday’s TDF results, the BSP’s R90 billion offering for the 7-day and 28-day term deposits were again swamped with tenders amounting to R195.963 billion. The yield for the shorter tenor stayed fixed at 2.5 percent while the 28-days continue to adjust to market with 2.521 percent.

“The results of the auction are not unexpected,” commented Tetangco.

The BSP chief has said that the capital market has not reacted – or swayed investor sentiments – to President Duterte’s declaration of a state of lawless violence pertaining to Mindanao and yet implemented on a nationwide scale.

Tetangco expects long-term benefits from the government action as the Duterte administration try to resolve peace and order issues.

In yesterday’s auction the BSP received R33.319 billion for the 7-day tenor and awarded R10 billion. The 28days had R162.644 billion tenders and the BSP awarded R80 billion.

The BSP has increased the TDF volume three times. It was initially offered at R30 billion last June, increased to R50 billion weeks later, to R70 billion in early August and R90 billion this month.

The BSP decides on the volume of the TDF on a regular basis depending on liquidity demand. It has adopted a liquidity forecasting method that indicate how much of amount offered the market could take or require. (LCC)