Term deposit rates rise on reserves cut

Term deposits continued to fetch higher rates ahead of the cut in the level of deposits that banks are required to maintain with the central bank starting tomorrow.

The yield of the seven-day term deposits rose to 3.0685 percent, from last week’s 2.8164 percent, while the 14day tenor fetched a higher rate of 3.0984 percent from 2.9798 percent.

Likewise, the yield of the 28-day term deposits rose to 3.1665 percent from 3.0258 percent.

The Bangko Sentral ng Pilipinas (BSP) has trimmed the reserve requirement ratio to 19 percent from 20 percent starting March 2. The move is expected to free to P90 billion in additional liquidity into the financial system.

Yesterday’s auction was oversubscribed as tenders reached P117.13 billion for the P110 billion offering.

The seven-day term deposits were undersubscribed as bids only reached P43.75 billion against the P50 billion offering.

On the other hand, tenders for the P40-billion, 14-day term deposit offering amounted to P44.5 billion, while bids for the 28-day term deposits reached P28.88 billion as against the offer size of P20 billion.

The BSP’s auction committee has raised the volume of the term deposit auction facility (TDF) twice so far this year to P110 billion from P40 billion at the start of the year as liquidity continued to return to the financial system.

The TDF is a key liquidity absorption facility used by central banks for liquidity management. It is tasked to withdraw a large part of the structural liquidity from the financial system as part of the shift to the interest rate corridor (IRC) framework to bring market rates closer to the BSP policy rate.