BSP to raise TDF offers to absorb liquidity

By Melissa Luz T. Lopez, Senior Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) will raise the auction volume for term deposits in the coming weeks in order to absorb additional liquidity released following a fresh cut in bank reserves.
BSP Governor Nestor A. Espenilla, Jr. said the central bank will introduce bigger weekly offerings under the term deposit facility (TDF) to recapture at least P90 billion expected to be freed up from bank vaults by the one percentage point cut in the reserve requirement ratio (RRR).
Last week, the central bank announced that the RRR will be trimmed to 18% of deposits held by universal and commercial banks starting Friday, effectively unleashing more funds which they can lend to clients.
This is also the second reduction of the “ultra-high” reserve regime this year, and is in line with Mr. Espenilla’s goal to eventually reduce the level to single-digit. The BSP chief previously said that adjustments in the RRR are now purely “operational,” given the goal of reducing lending costs and keeping the Philippine banking system competitive relative to Asian peers.
“Yes we are releasing, at the first round, liquidity into the system. But as you know, there is a second round to it so we are going to pick up excess liquidity through our open market operations,” Mr. Espenilla told reporters on the sidelines of a signing ceremony on Monday.
Reducing the reserve standard meant pumping even more funds into the financial system, which comes at a time of double-digit money supply growth sustained over the past two years.
This should be offset by greater TDF offerings, the central bank chief said.
“In this case, around the time when the reserves are released on June 1, we will probably increase our volume net of what we see what is the requirement at the moment of the system,” Mr. Espenilla added.
The central bank is now relying heavily on the weekly term deposit auctions to manage money supply and bring market rates within the 2.75-3.75% benchmark. The TDF allows banks to park the idle cash they hold under the BSP in exchange for a small margin.
The BSP hiked the auction amount to P120 billion for last week’s auction, but this was only met by bids worth P98.455 billion.
For today, the volume was trimmed to P110 billion. The TDF volume is expected to be raised from this level over the coming weeks.
ING Bank N.V. Manila said on Monday that anticipation for additional liquidity drove the peso weakness late last week, which saw the currency touch a fresh 12-year low at P52.70 versus the dollar on Friday.
Monday also saw the BSP sign an agreement with BDO Foundation and the Department of Education for the rollout of financial education videos and instructional materials for public schools.
The goal is to include financial literacy in the K+12 basic education curriculum, with the learning tools expected to reach 700,000 teachers and 24 million students nationwide.