BSP trims term deposit auction volume to P30B

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By Melissa Luz T. Lopez, Senior Reporter

THE CENTRAL BANK has slashed the amount of term deposits it will auction off this week to the lowest level in over two years due to weaker demand from banks just before the holiday season wraps up.

The Bangko Sentral ng Pilipinas (BSP) will only offer P30 billion worth of term deposits for its first auction for 2019, which is the lowest level seen since the weekly offerings started in June 2016.

The auction volume was slashed for the second straight week coming from the P70 billion offered on Dec. 19 and P50 billion on Dec. 27. The amount is split equally at P10 billion each for the seven-day, 14-day and 28-day term deposits for today’s auction.

Banks wanted to park just P35.219 billion under the term deposit facility (TDF) last week, settling well below the amount the BSP placed on the auction block. The central bank even had to reject P6 billion worth of tenders and accepted only P29.219 billion as the interest rates sought by market players were too high.

More players wanted to maximize the interest rate corridor of the central bank and bid closer to the ceiling of 5.25%, driving average yields higher for both the one-week and one-month papers.

The TDF has been the central bank’s main tool to capture excess money supply in the financial system. By holding these weekly auctions, the BSP can usher market and interbank rates closer to its desired range of 4.25-5.25% by setting the standard for short-term instruments through the yields which they accept.

BSP Deputy Governor Diwa C. Guinigundo has said the higher bids from banks were expected, given that they have less excess cash as they service more withdrawals over the Christmas season.

“Yes, the volume may be reduced based on our liquidity forecasts indicating the higher demand for cash and less propensity to deposit with BSP these days. This is just normal market outturn,” Mr. Guinigundo said in a text message to reporters.

Financial markets will reopen today after a long weekend for New Year’s Day celebrations. The BSP has announced that clearing, settlement and treasury operations will proceed despite a government-wide holiday.