Yields on BSP’s term deposits increase

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term deposit facility (TDF)

By Melissa Luz T. Lopez
Senior Reporter

BANKS SCRAMBLED to place more funds under the central bank’s term deposit facility (TDF) following lower reserves which took effect on Friday, even as yields climbed from the previous week.

Demand for term deposits surged to P146.856 billion yesterday, jumping from the P117.127- billion tenders received the previous week and well above the P110 billion offered by the Bangko Sentral ng Pilipinas (BSP), with over half of the bids swarming the seven-day tenor.

The week-long instruments received P80.026 billion in total bids, nearly double the P43.751 billion in offers a week ago and settling beyond the P50 billion dangled by the central bank.

Despite the oversubscription, the average yield picked up to 3.1767% from 3.0685%.

On the other hand, bids for the 14-day term deposits slipped to P43.31 billion from P44.497 billion previously, although still higher than the P40 billion dangled by the BSP.

Players sought for returns ranging from 3-3.3% to average 3.1674%, up from 3.0984% the previous week.

Demand for the 28-day tenor also declined to P23.52 billion from P28.879 billion a week ago, although still settling above the BSP’s P20-billion offering. Lenders asked for yields averaging 3.2627%, higher than the 3.1665% they sought a week prior.

The TDF stands as the central bank’s main tool in mopping up excess funds in the financial system. The facility allows banks to park idle cash under the BSP in exchange for a small return.

The BSP expects to use auction-based monetary operations to have a better handle on market loan rates, after it introduced a one percentage point cut in the reserve requirement ratio (RRR) imposed on universal and commercial banks.

The adjustment, which took effect March 2, is said to be operational as it seeks to reduce market distortions created by the “ultra-high” RRR.

“TDF auction results confirm success and effectiveness of our operational adjustment,” BSP Governor Nestor A. Espenilla, Jr. said in a text message to reporters, pointing out “strong participation” among market players.

“Resulting yields trace a pattern consistent with healthy price discovery in line with macroeconomic fundamentals,” the central bank chief added.

The reserve cut will unlock around P90 billion into the financial system, which the BSP expects to capture through the TDF and other policy tools.

Any excess cash which have not been deployed for loans, foreign exchange and debt payments can be parked under the central bank window in order to make small gains, which in turn is expected to bring market rates closer to the 3% benchmark set by the BSP.

For next week, Mr. Espenilla said latest liquidity forecasts “suggest no change in offer volumes.”

This means that the BSP will likely keep the total auction amount at P110 billion, split into P50 billion under the seven-day term, P40 billion for the two-week tenor, and P20 billion for month-long maturities.