Bids for term deposits decline as BSP slashes auction volume

By Melissa Luz T. Lopez, Senior Reporter
DEMAND FOR term deposits was halved this week as the central bank slashed the auction amount, in anticipation of higher cash requirements next month.
Banks put forward just P37.125 billion in bids for the term deposit facility (TDF) yesterday, filling the P30 billion which the Bangko Sentral ng Pilipinas (BSP) placed on the auction block. This dropped from the P65.53 billion tenders received a week ago, against a P50-billion offering.
Yields saw mixed movements in the remaining one-week and two-week tenors. Meanwhile, the BSP did not offer the one-month papers again.
Bids for the seven-day notes reached P22.985 billion, shooting past the P20-billion offer but sliding from last week’s P27.254 billion worth of tenders.
Banks also asked for higher returns for these short-term placements, with yields ranging from 4.75-5.02%. This fetched an average of 4.9831%, a tad higher than the 4.9803% rate seen during the March 20 exercise.
Appetite for 14-day papers also softened to P14.14 billion, which still shot past the P10 billion which the BSP wanted to sell. The demand dropped from the previous week’s P22.198 billion, which matched a P20-billion auction volume.
Here, the average yield inched lower to average 5.0567% from 5.1079% a week ago.
The TDF has been the central bank’s primary tool to shore up excess funds in the financial system. Through the weekly auctions, the BSP is eyeing to bring market and interbank rates closer to their desired range through the yields which they accept.
Last week, the Monetary Board voted to keep benchmark interest rates unchanged at 4.25-5.25%, with policy makers citing the need to monitor if the inflation downtrend will be sustained. The policy rates are also used as the reference for TDF margins.
BSP Deputy Governor Diwa C. Guinigundo has repeatedly said that the financial system remains liquid, with the weekly TDF surpluses proving that banks continue to sit on piles of cash despite some calls that liquidity has tightened.
Last week, Mr. Guinigundo explained that the decision to stop offering the 28-day papers due to seasonal factors, with a spike in demand for cash expected due to the annual income tax filing deadline on April 15 alongside the Holy Week break. He said tight liquidity conditions are “temporary,” and will normalize eventually.