BSP shortens lead time for TDF volume posting

The Bangko Sentral ng Pilipinas (BSP) has shortened the lead time for the posting of the issue size of one of its liquidity absorption facility starting the third quarter to get a better view of the latest market liquidity conditions.

In an advisory, the central bank said it has shortened the lead time for positing the offer volumes for the term deposit auction facility (TDF) from seven days to two days before the auction date.

“In response to the feedback received from BSP counterparties in previous consultations, the details on the offer volumes per tenor will be posted two days before the auction date instead of seven days starting in the third quarter,” the BSP said.

The BSP formally adopted an interest rate corridor (IRC) system in June 2016 as a framework for conducting its monetary operations, paving the way for the launch of the TDF.

The IRC is a system for guiding short-term market rates toward the BSP policy interest rate which is the overnight reverse repurchase rate consisting of a rate at which the central bank lends to banks or the overnight lending rate and a rate at which it takes deposits from them or the overnight deposit rate.

The TDF is a liquidity absorption facility used by the BSP for active liquidity management.

The auction committee has been offering three tenors including the seven, 14, and 28-day term deposits.

“The implementation of a shorter lead time for announcing TDF offer volumes is part of the BSP’s initiatives to enhance the conduct of its monetary operations by ensuring that auction volumes are based on latest information on market liquidity conditions,” the central bank said.

Term deposit rates eased on Wednesday after the BSP adopted a “prudent pause” by keeping interest rates unchanged last week to assess the impact of earlier monetary actions.

The seven-day tenor fetched 4.6240 percent yesterday, slightly lower than last week’s 4.6278 percent, while the yield of the 14-day term deposits declined by 1.05 basis points to 4.7002 percent from 4.7107 percent.

The BSP has not auctioned the 28-day tenor since June 19.

The BSP kept benchmark rates steady last June 20 after slashing interest rates by 25 basis points last May 9 due to easing inflation as well as slower-than-expected gross domestic product (GDP) growth of 5.6 percent in the first quarter from 6.3 percent in the fourth quarter of last year.

Aside from the policy easing, the central bank also slashed the reserve requirement ratio for big and midsized banks by 200 basis points in three tranches until July 26 and for small banks by 100 basis points last May 31 as part of the commitment of the late BSP governor Nestor Espenilla Jr. to bring down the level to single digit levels.