APPETITE for term deposits declined on Wednesday ahead of the implementation of the first stage of a phased reduction in big banks’ reserve requirement ratio (RRR) announced by the Bangko Sentral ng Pilipinas (BSP) last week.

Bids received by the central bank on Wednesday amounted to P39.113 billion, failing to fill the P40-billion auctioned under the term deposit facility (TDF). This is also lower than the P42.891 billion worth of tenders received a week ago.

Demand for the one-week papers amounted to P20.455 billion, just a tad above the P20 billion on offer and also higher than the P17.486 billion in bids seen at last week’s auction.

Accepted yields ranged from 4.5%-4.7698%, slightly lower than the 4.453%-4.76% margin seen for the seven-day term in the previous auction. However, the average rate settled at 4.6375%, higher than the 4.5695% seen last week.

Meanwhile, total tenders for the 14-day papers amounted to just P8.286 billion, below the programmed volume of P10 billion and the P14.26 billion worth of bids at last week’s auction.

Banks asked for returns within 4.5%-4.7%, a tad narrower versus last week’s range of 4.5%-4.75%. This caused the average rate for the two-week tenor to decline to 4.5999% from last week’s 4.6013%.

On the other hand, the 28-day papers were met with total bids of P10.372 billion, slightly higher than the P10 billion on the auction block but below last week’s P11.145 billion. Yields sought by banks for the one-month deposits ranged from 4.5%-4.75%, steady from the previous auction’s margin, resulting in an average rate of 4.638% versus last week’s 4.6495%.

The TDF stands as the central bank’s primary tool to shore up excess funds in the financial system and to better guide market interest rates. Earlier this month, the BSP cut benchmark interest rates by 25 basis points (bp), bringing the interest rate on the central bank’s overnight reverse repurchase facility to 4.5%. The rates on the overnight lending and deposit facilities were also reduced accordingly to 5% and 4%, respectively.

BSP Monetary Board Member Felipe M. Medalla said in a text message that “tight liquidity” caused the decline in demand for the term deposits this week.

“The RRR cuts will address the problem of tight liquidity,” Mr. Medalla said.

Asked if demand for term deposits is likely to increase following the RRR cut, Mr. Medalla said: “Not necessarily. The banks may choose to deploy the funds freed by the RRR cut.”

The central bank announced last week a series of reductions in the reserve ratio of universal and commercial lenders. The current 18% rate will be reduced to 17% effective May 31, 16.5% effective June 28, and to 16% effective July 26.

The BSP estimates that each percentage cut in big banks’ RRR will release P90-P100 billion into the financial system.

BSP Governor Benjamin E. Diokno has said he wants to reduce big banks’ reserve requirement ratio to single digits by 2023 to put the rate at par with those being implemented in neighboring countries. — R.J.N. Ignacio

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