Weekly volume of R180 billion for TDF liquidity auction ample

The Bangko Sentral ng Pilipinas (BSP) has kept a R180-billion auction size for its two-tenor term deposit facility (TDF) for the last 19 weeks and officials think this volume remains sufficient based on demand which remain seasonal-driven.

The BSP announced on Wednesday that the current auction size will be maintained until April 26.

“We will continue to monitor bank positions and refresh our liquidity forecasts as needed,” said BSP Governor Amando M. Tetangco Jr. on the auction date, Wednesday, before Holy Week break.

The TDF transactions were still undersubscribed as investors were more occupied with the government’s retail treasury bond (RTB) offering amounting to R30 billion.

“The undersubscription was primarily due to RTB settlement on April 11,” noted Tetangco. “Seasonal factors such as client withdrawals ahead of the Holy Week break were also observed. There were likewise reports that banks were setting aside funds for their reserve requirement compliance,” he added.

The BSP uses the auction to manage liquidity by siphoning off excess liquidity in the system. The TDF was launched in June of last year when the interest rate corridor (IRC) – a system for guiding short-term market rates towards the BSP policy interest rate – was adopted. “The key benefit of the adoption of the IRC system is the strengthening of monetary policy transmission by ensuring that money market interest rates move within a reasonable range around the BSP’s policy rate,” said the BSP in a recent report. “The adjustments in the BSP’s key interest rates under the IRC reform were primarily operational in nature and were not expected to materially affect prevailing monetary policy settings.”

The report noted that the offering of the TDF, in particular, is expected to promote the establishment of benchmarks for short-term interest rates. “Increased activity and better pricing in money market rates, in turn, are seen to help add depth to money markets and help develop the domestic capital market,” said the BSP.