Mixed results in term deposit auction

Shorter- and longer-dated term deposits fetched mixed results yesterday as the auction remained undersubscribed.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo attributed the undersubscription to the decision of most banks to fund the infrastructure and expansion projects of private companies resulting in fewer tenders for term deposits.

“TDF results continue to demonstrate that one, banks have been funding more loans and investment in government securities and two, short-dated placements are preferred by the market,” Guinigundo said.

The seven-day term deposits fetched a higher rate of 3.3080 percent from last week’s 3.2597 percent as accepted yield ranged between 3.15 and 3.45 percent.

On the other hand, the yield of the 28-day term deposits eased to 3.4929 percent from 3.4948 percent as accepted rates ranged from 3.425 to 3.5 percent.

The seven-day term deposits attracted P35.05 billion in bids, lower than the issue size of P40 billion.

Likewise, the 28-day term deposits remained undersubscribed as tenders for the P140 billion offering only amounted to P106.19 billion for a lower bid coverage ratio of 0.7585 percent.

“This is after all expected by the BSP because we want excess funds of the banks to be channeled to financing productive economic activities including infrastructures,” Guinigundo said.

In all, the P180-billion facility was undersubscribed as total bids only amounted to P141.24 billion. The BSP auction committee decided to retain the volume of the facility at P180 billion on Aug. 2.

The central bank introduced the TDF and converted the special deposit account facility into the overnight deposit facility (ODF) after shifting to the interest rate corridor (IRC) system in June last year.

Both the TDF and ODF are used to mop up excess liquidity in the financial system. The shift to the IRC system is aimed at bringing market rates closer to the policy rates.

Starting July 1, trust entities were no longer given access to both the TDF and the ODF.

“Thus, we continue to assess various IRC features including the volume of weekly auction,” he added.