BSP trims term deposit offerings as demand weakens due to RTBs

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By Melissa Luz T. Lopez,
Senior Reporter

THE CENTRAL BANK has slashed auction volumes for term deposits for December amid tepid demand as excess funds held by banks found its way to the government’s retail bond offer and other investment instruments.

The Bangko Sentral ng Pilipinas (BSP) will only be selling P80 billion worth of term deposits by December, down from the P130 billion offered this month amid a trend undersubscription for the week-long and month-long tenors.

This is the fourth time the BSP has trimmed the weekly auction volume this year, coming from a peak of P180 billion from January to August. By Dec. 6, the central bank will only accept bids of up to P40 billion for each of the week-long and month-long tenors.

The decision came as Wednesday’s P130-billion offering received a mere P82.727-billion demand, slipping from the P92.776 billion received a week ago as banks were reluctant to park their extra funds under the facility.

Bids for the seven-day tenor dropped to P37.351 billion from P52.415 billion last week, settling below the P40 billion which the central bank placed on the auction block. The firms also sought for lower returns to average at 3.4005%, coming from 3.4057% the previous week.

The 28-day term deposits were likewise barely filled, with tenders settling at P45.376 billion against the P90 billion which the BSP wanted to sell. However, this inched higher than the P40.361 billion in offers received last week.

The soft demand also drove yields lower to a 3.492% average, compared to 3.4926% last week.

The term deposit facility is currently the central bank’s main tool to capture excess liquidity in the financial system by allowing banks to place extra cash they hold, in exchange for a small return. Through this, the BSP expects to influence market rates to log closer to the 3% benchmark rate, coming from below the 2.5% floor of the interest rate corridor.

A central bank official said the reduction of the auction volume is in response to a shrinking supply of excess funds in the financial system, particularly after billions of pesos have been captured by retail Treasury bonds (RTB) dangled by the government last week.

“Banks have been withdrawing their excess liquidity from BSP facilities to fund loans to various production sectors, buy foreign exchange for clients’ imports and outward investment requirements, and investment in government securities and retail treasury bonds, among others,” BSP Deputy Governor Diwa C. Guinigundo said in a text message to reporters.

“[T]here is less excess liquidity to mop up. The BSP therefore decided that it should offer less volume in the TDF.”

The Bureau of the Treasury has so far raised between P100 billion and P200 billion from the five-year papers, Mr. Guinigundo said.

Mr. Guinigundo said funds raised under the RTB offering will eventually be absorbed and redeployed in the system as these are spent for the construction of big-ticket projects.

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