BSP eyes third tenor for term deposit offerings

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THE CENTRAL BANK is looking to introduce a new tenor for its weekly term deposit auctions, a senior official said, at a time of tepid demand for month-long instruments.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said the monetary authority is in talks with banks as it considers adding a new maturity for the term deposit facility (TDF), which would likely be longer than a week but shorter than a month.

“Based on our initial discussion with the banks — these are initial, preliminary discussions — they prefer a third tenor, probably a cross between seven and 28 days,” Mr. Guinigundo told reporters in December.

The weekly term deposit auctions are currently the central bank’s primary tool to capture excess funds in the financial system by allowing banks to park the extra cash they hold under the window, in exchange for a small margin.

The central bank has not offered 28-day term deposits at the weekly auctions since Dec. 20, citing shrinking excess liquidity held by financial firms which they can park under the window.

The month-long tenor was last offered on Dec. 13, during which the P40-billion auction volume was met by just P33.005 billion in total demand.

The central bank will place just P40 billion on the auction block today, which will mature in seven days. This is the third straight week of the reduced offerings.

“[T]he BSP decided to zero out the TDF for 28 days because we know that banks have alternative use for their money instead of just putting it there with BSP,” Mr. Guinigundo said, explaining that expected demand for cold cash among depositors prompted banks to hold on to more funds rather than have them locked away for a month.

There is a seasonal spike in demand for cash during the holidays as families spend for celebrations and gift-giving activities. Apart from the Christmas rush, Mr. Guinigundo said the recent retail Treasury bonds offering which yielded P255 billion for the government in December also trimmed excess money supply in the financial system.

Banks also continued with their lending and investment activities, which are considered high-yielding compared to the margins paid by the central bank for term deposits. Yields for the TDF range within the 2.5-3.5% benchmark set by the BSP.

The seven-day deposits fetched a rate of 3.3995% during the Dec. 27 auction, lower than the 3.4004% posted the previous week.

Traders previously interviewed by BusinessWorld said 14-day and 21-day instruments may be viable options amid ample market liquidity, as well as a length between the 28-day and the 91-day Treasury bills.