Demand for term deposits drops

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DEMAND for term deposits thinned this week, with the Bangko Sentral ng Pilipinas (BSP) even rejecting some offers as banks asked for higher yields than usual.

The central bank’s last auction for 2018 was met with weak appetite on Thursday as market players chose to hold on to more cash to service greater client demand over the holidays.

Banks offered to park just P35.219 billion under the term deposit facility (TDF), dropping from the P58.488 billion in offers put forward the previous week to barely fill the P50 billion the BSP placed on the auction block.

The central bank even rejected P6 billion worth of tenders and accepted only P29.219 billion as returns sought by players were too steep compared to what it was willing to pay.

This week’s auction was moved a day later than the usual Wednesday schedule to make way for the Dec. 26 holiday declared for government offices. The term deposit tenors were also shortened.

The six-day deposits saw demand halved to P18.714 billion from P37.235 billion the previous week, settling well below the P30 billion which the BSP wanted to sell. The central bank even rejected some bids and only accepted P15.714 billion, as more players asked for higher returns ranging from 5.1-5.25%.

The average interest rate also climbed to 5.1903%, more than four basis points (bps) higher than the 5.1462% fetched a week ago as more banks wanted returns closer to the 5.25% ceiling rate.

Weaker appetite also met the 13-day tenor, shoring up just P8.698 billion worth of bids compared to P14.623 billion received a week ago. The central bank even rejected P2 billion worth of tenders and got only P6.698 billion, versus an auction amount of P10 billion.

Despite this, yields for the two-week papers slid to 5.2014%, down from a 5.2188% average fetched during the Dec. 19 exercise.

Meanwhile, the 27-day instruments saw demand improve to P7.807 billion from P6.63 billion previously, but remained lower than the P10 billion which the BSP placed on the auction block.

However, authorities chose to reject some offers and accepted only P6.807 billion, keeping the average yield steady at 5.2094% from last week’s 5.2092%.

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 said last week that banks are deliberately choosing to park less funds under the TDF as they respond to greater demand for cash among clients over the holiday season. He said that this also drove the central bank to slash the auction volume for the week.

Financial markets will be closed on Monday and Tuesday next week to make way for New Year’s Day celebrations, following a long weekend for Christmas. — Melissa Luz T. Lopez