BIDS FOR term deposits dropped on Thursday as the central bank placed a lower volume on offer two weeks ahead of the second round of cuts to banks’ reserve requirement ratio (RRR).

The Bangko Sentral ng Pilipinas (BSP) received P26.962 billion in tenders for its term deposit facility (TDF) yesterday, below the P30 billion on offer. This is also lower than the bids worth P31.614 billion seen last week versus a P40-billion offer following the first round of RRR reductions.

Bids for the six-day papers totalled P10.77 billion, higher than the P10 billion on offer. However, this was less than the P18.895 billion in tenders received last week for the auction of P20-billion worth of seven-day deposits.

Accepted yields ranged between 4.5% and 4.75%, slightly below the 4.5-4.7718% margin seen last week for the one-week deposits. This caused the average rate of the six-day term to slip to 4.6661% yesterday from 4.6669% a week ago.

Meanwhile, total tenders for the 13-day tenor amounted to P7.418 billion yesterday, higher than the P6.665 billion bids received last week but still below the P10 billion the BSP placed on the auction block.

Banks sought yields ranging between 4.5% and 4.9%, wider than the 4.5-4.75% range seen a week ago. The average rate for the tenor declined slightly to 4.6562% on Thursday from last week’s 4.6048%.

On the other hand, the 27-day papers received P6.774 billion in tenders, above the P6.054 billion worth of bids last week but still failing to fill the P10 billion up for grabs.

Yields sought by lenders ranged between 4.6-4.95%, slightly above the 4.595-4.9% margin in the previous week, causing the average rate for the one-month papers to climb to 4.7848% on Thursday from 4.6602% last week.

Some term deposit tenors offered this week were slightly shorter due to Wednesday’s Independence Day holiday.

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.

Last month, the BSP cut benchmark yields 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.

The BSP also reduced the RRR of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks.

The reserve ratios of big banks and thrift lenders will be reduced further to settle at 16% and 6%, respectively, on June 28 and July 29.

BSP Governor Benjamin E. Diokno has said he wants to reduce big banks’ RRR to a single digit rate to put at par with those being implemented in neighboring countries.

BSP Board Member Felipe M. Medalla earlier said banks would rather place their money on other income-generating activities such as loans — hence the decrease in TDF tenders despite extra liquidity due to recent reductions to their reserve ratios.

On Tuesday, Mr. Medalla said further interest rate cuts may not be necessary amid the current inflation trend.

“Inflation is going to be a little bit below 3% this year, a little bit higher than 3% next year. Therefore, there’s really no reason to change policy rates… If you look at the chart of inflation, there’s a 16-month period when inflation was below 2% and was even below 1% at that time,” Mr. Medalla said.

“So if something like that would happen, the economy is going to be very weak. Then you’ll have to make a position — counter that by maybe accelerating the reserve cuts or the policy rates. But right now, as I see it, its a safe bet that there’s no need to make adjustments unless we see new data,” he added. — R.J.N. Ignacio

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