By Melissa Luz T. Lopez,
Senior Reporter

YIELDS fetched under the central bank’s term deposit facility (TDF) moved sideways yesterday, with the lower auction volume for month-long instruments driving the average rate lower from the previous week.

Tenders received during Wednesday’s auction reached P127.333 billion, still lower than the reduced P150-billion offering of the Bangko Sentral ng Pilipinas (BSP) and below the P142.29- billion bids logged the previous week.

Offers for the seven-day term deposits logged at P42.918 billion, just a tad higher than the P40 billion which the central bank wanted to sell, although recovering from last week’s slump at P32.435 billion. On the other hand, the average rate sought by banks moved slightly higher to 3.3334%, coming from the 3.3162% fetched a week ago.

On the other hand, bids for the 28-day instruments fell to P84.415 billion, missing the downsized P110-billion offering and also lower than the P109.855 billion tallied during the Aug. 30 exercise. The pale demand pushed rates lower to 3.491%, sliding from the 3.4961% average the week prior.

The TDF is currently the central bank’s main tool to arrest excess money supply in the financial system, where banks can park their idle funds for a small return.

This week marks the first time when the auction size was trimmed to P150 billion from the previous P180-billion offering for nine straight months. The reduced volume also comes two months after trust entities stopped bidding for term deposits following central bank rules, which effectively reduced the amount of deployable funds for the TDF.

BSP Deputy Governor Diwa C. Guinigundo said the continued undersubscription likely reflected banks’ decision to place their excess funds elsewhere rather than place these under the BSP’s auction.

“The reduction in the 28-day TDF volume has just been introduced. Banks must have earlier deployed their funds somewhere else,” Mr. Guinigundo said in a text message to reporters. “We expect TDF rates to be moving closer with the BSP’s policy rate than bumping into the BSP’s overnight lending rate over time. That would signal better transmission of monetary policy.”

Mr. Guinigundo previously said that banks may have also opted to use their extra cash to buy more dollars or settle foreign debts.

Through the TDF, the central bank is targeting to bring market rates within the 2.5-3.5% spread of the interest rate corridor.

Next week, the BSP will again be offering P150 billion worth of term deposits, split between P40 billion under the week-long term and P110 billion with a month-long maturity.

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