TDF rates continue to rise while bids fall below offer
The central bank’s term deposit facility’s (TDF) average rates rose anew while bids fell to 195.30 billion against offer of 1100 billion.
The three-tenor TDF has kept its volume of 140 billion each for the 7-day and 14-day, and 120 billion for 28 days.
In Wednesday’s auction, with the market absorbing the latest inflation data of 6.4 percent for the month of August which was higher than most expectations including that of the BSP’s 5.5 percent-6.2 percent range, banks’ tenders were lower than offered while yields increased in anticipation of higher benchmark rates.
As with the previous week, average rates were higher across all tenors, based on Bangko Sentral ng Pilipinas (BSP) data.
The 7-day tenor received tenders of 131.96 billion versus 143.81 billion last week, but rates were up at 4.3218 percent from 4.2878 percent.
Banks bid only 142.67 billion for the 14-days, lower than last week’s 149.25 billion. Yields increased to 4.4123 percent from 4.3892 percent.
The 28-day tenor had 120.67 billion bids compared to the previous week’s 123.33 billion. Averate rate climbed to 4.4515 percent from 4.4105 percent.
With the still elevated inflation expectations, the BSP is widely predicted to raise policy rates again by 50 basis points on September 27, its next policy rate meeting. The central bank has already adjusted key rates higher by a combined 100bps since May of this year.
With rising rates, the BSP has been encouraging market rates to mirror its increase.
The interest rate corridor (IRC) system which gave way for the establishment of an auction-based open market facility, has allowed the BSP room to cut reserve requirement ratio (RRR) twice this year. The
Espenilla said while there is room for additional RRR cut, they have deferred further reduction to next year because inflation remains high due to cost-push pressures.
TDF and other BSP open market operations have neutralized the impact of RRR reductions, according to BSP Governor Nestor A. Espenilla Jr.
The BSP adopted the IRC system in mid-2016. The IRC is a system for guiding short-term market rates towards the BSP policy interest rate which is the overnight reverse repurchase rate.