TDF auction fetches lower rates this week

The central bank’s weekly auction of term deposit facility (TDF) fetched lower rates this week but has remained oversubscribed.

The Bangko Sengtral ng Pilipinas’ (BSP) TDF – which it uses to manage liquidity in the financial system – has also remained in the same volume or R180 billion since December 1.

The volume which is R150 billion for the 28 days and R30 billion for the 7 days, will keep until February 22 pending further announcements. The details of the volume are communicated to the market two weeks before a scheduled auction.

During Wednesday’s auction, the 7-day term deposits received tenders amounting to R55.498 billion against award of R30 billion. Its weighted average accepted rate continue to decline to 3.0219 percent compared to the previous week’s 3.0306.

The 28 days were also oversubscribed at R207.41 billion versus offer and award of R150 billion. Its weighted average accepted yield was lower at 3.4106 percent from last week’s 3.4320 percent.

The BSP’s Monetary Board has kept its rates unchanged for more than a year. However, it has recalibrated its key overnight rate when it implemented the interest rate corridor (IRC) framework in June of last year.

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.

As of the BSP’s last policy meeting, the overnight borrowing rate remains unchanged at three percent. The market consensus is that the Monetary Board will maintain key rates during its meeting today.

Standard Chartered Bank economist for Asia Chidu Narayanan reiterated that for 2017, they expect the BSP to hold a neutral monetary policy stance despite a rising inflation path.