TDF rate continues to drop on high demand
The central bank’s auction of the 7-day term deposit facility (TDF) continue to be oversubscribed and the demand yielded lower rates this week for the lone tenor.
The 7-day TDF which was still the only tenor being auctioned by the Bangko Sentral ng Pilipinas (BSP) for the past five weeks, will remain the single offering for the January 24 transactions. Its volume of offering is also unchanged at R40 billion. The BSP scrapped the 28-day tenor on December 20 for consistently falling below the offer size.
On Wednesday, the entire R40 billion offer was awarded to banks. The BSP received tenders amounting to R125.564 billion which was lower than last week’s R127.119 billion.
The BSP’s accepted yield ranged from 2.9375 percent to 3.1 percent. The weighted average accepted yield was 3.1391 percent, lower than the previous week’s 3.2223 percent.
The TDF is one of the BSP’s primary liquidity absorption facilities. It was first implemented on June 3 last year after shifting to the interest rate corridor (IRC) framework.
BSP Governor Nestor A. Espenilla Jr. said on Tuesday that they are looking into enhancements to their open market operations such as the TDF.
“To ensure monetary policy adjustments are transmitted effectively to the economy, we will continue to refine the IRC,” said Espenilla.
BSP Deputy Governor Diwa C. Guinigundo has said that banks are given enough time to normalize liquidity conditions before they could return the longer-dated tenor or the 28 days. There are also discussions with banks to introduce a third tenor to the TDF which was one of the original proposals prior to the IRC adoption.
Guinigundo said that the timing is essential in bringing back the 28-day offering. Before it was temporarily shelved on December 20, the 28-day tenor has been consistently undersubscribed for months since the market is more interested in banks’ negotiable certificates of deposits and the government’s retail bond offering.
The IRC is a system for guiding short-term market rates towards the BSP policy interest rate which is the overnight reverse repurchase or RRP rate. The shift to the IRC system does not represent a change in the BSP’s stance of monetary policy however, said the BSP.