BSP TDF auction undersubscribed as banks keep cash

The central bank’s term deposit facility (TDF) was undersubscribed yesterday for the first time since the weekly auction was introduced in June with banks holding on to cold cash for the holidays.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said banks and participants seem to prefer a liquid position by keeping their cash hoard for the Christmas period.

“Possible reasons include seasonality (banks holding on to cash for the holidays) and the withdrawal of trust accounts from BSP facilities,” Tetangco commented.

“These may have brought down the bid to cover ratio to 0.5288 and 0.7548 for the 6-day and 27-day tenor, respectively.”

The BSP chief, however, assured that there is sufficient liquidity in the system.

“We see the level of liquidity in the system as still healthy and non-inflationary. We nevertheless remain watchful of external developments that may affect domestic liquidity through shifts in capital flow direction and magnitude,” Tetangco said.

The BSP has increased the TDF volume to R180 billion beginning yesterday, December 1, or up by R50 billion. The auction continues to be effective in mopping up excess liquidity in the system.

During yesterday’s auction, the 27-day had a tendered amount of R113.214 billion against offer of R150 billion. The 6 days had R15.865 billion tendered against R30 billion given to the market.

The weighted average accepted yield for the longer-dated term deposit was at 2.9557 percent from 2.7842 percent last week. The 6-days had 2.6059 percent from 2.5232 percent.

The BSP implemented the interest rate corridor or IRC system last June 3. The IRC is a system for guiding short-term market rates towards the BSP policy interest rate which is the overnight reverse repurchase rate, and to help improve monetary policy transmission and to limit interest rate volatility.