Central bank cuts TDF offerings as demand continues to weaken
By Melissa Luz T. Lopez,
Senior Reporter
THE CENTRAL BANK will not offer month-long term deposits next week amid feeble demand for these instruments, with market players preferring the shorter tenor as they expect higher global yields and bigger cash requirements for the holidays.
The decision came as bids received during yesterday’s offering declined further to P71.925 billion yesterday from the P74.109 billion recorded the previous week. This settled below the P80 billion the Bangko Sentral ng Pilipinas (BSP) wanted to sell.
Banks offered to place P38.92 billion under a seven-day term, slipping from P41.269 billion in tenders received a week ago and below the P40-billion offering. Despite the narrower demand, the average yield sought by the firms climbed to 3.4542% from last week’s 3.4171%.
The 28-day tenor likewise saw tepid demand at just P33.005 billion, failing to maximize the P40 billion placed on the auction block even as it inched up from P32.84 billion during the Dec. 6 offering. Rates steadied at 3.4954%, compared to 3.494% previously.
The term deposit facility (TDF) is currently the central bank’s main tool to capture excess money supply in the financial system by allowing banks to place extra cash they hold, in exchange for a small return.
BSP Deputy Governor Diwa C. Guinigundo said recent liquidity forecasts done by the monetary authority showed that lenders had smaller amounts to place under the TDF, which inspired the drastic cut in the auction volume.
For Dec. 20, the central bank slashed the auction volume to P40 billion in seven-day papers, and will offer none under the 28-day tenor. This offering is the smallest since the P30 billion offered back in June last year when the weekly TDF auctions started.
“Our numbers suggest that banks continue to lend more, buy FX (foreign exchange) for imports, debt servicing and foreign investments. Hence, they have sustained demand for funds that would translate into lower excess demand in the system,” Mr. Guinigundo said in a text message to reporters.
Still, the central bank official expects players to continue placing what’s left of their excess funds under the week-long tenor, especially ahead of cash requirements during the holidays.
“Banks continue to demand very short-term instruments like the 7-day TDF to allow them greater flexibility in servicing the needs of their clients and deploying the rest of their funds,” Mr. Guinigundo added.
Central bank officials have pointed out that banks are sitting on a smaller stash of idle funds, especially after the overwhelming P255.4-billion amount raised by the Treasury during its retail bond sale last month. Lenders may also be choosing to hold on to cash to address an increase in withdrawals in time for Christmas.
Market players are likewise anticipating a fresh rate hike from the United States Federal Reserve this week, which is expected to bring global yields up.
