DEMAND for the term deposits climbed on Wednesday. — BW FILE PHOTO

BANKS’ DEMAND for term deposits increased on Wednesday ahead of the Bangko Sentral ng Pilipinas’ (BSP) policy review today.

The central bank received P40.787 billion in tenders for its term deposit facility (TDF) yesterday, more than double the P20 billion it placed on the auction block. This is also higher than the P26.962 billion worth of bids seen a week ago versus the P30 billion on offer.

Broken down, the seven-day term deposits received P20.259 billion in tenders, more than double the P10 billion on offer yesterday. This is also higher than the P10.77 billion worth of bids received last week for BSP’s P10-billion offer of six-day papers.

Accepted yields ranged between 4.5% and 4.7%, slightly wider than the 4.5-4.75% margin seen a week ago for the six-day deposits. This caused the average yield for the one-week papers to decline to 4.6278% yesterday from 4.6661% a week ago.

Meanwhile, banks wanted to park as much as P20.585 billion in the 14-day term deposits yesterday, also more than double the P10-billion offer volume. The total demand was likewise well above the P7.418 billion logged last week for P10 billion worth of 13-day papers.

Returns sought by banks for the two-week tenor ranged between 4.6 and 4.8% yesterday, narrower than the 4.5-4.9% margin seen last week. As a result, the average rate for the papers inched higher to 4.7107% on Wednesday from the 4.6562% quoted for the 13-day papers last week.

On the other hand, the BSP did not offer one-month term deposits this week. Last Thursday, the 27-day term deposits received P6.774 billion in tenders, lower than the P10 billion on offer. Yields sought by lenders ranged between 4.6-4.95%, causing the average rate for the one-month papers to climb to 4.7848% from 4.6602% in the previous auction.

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.

The central bank’s Monetary Board is scheduled to meet today to review policy settings. Six out of 10 analysts polled by BusinessWorld expect the BSP to hold fire to ensure that inflation maintains its downward trend.

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 reserve requirement ratios (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.

Late last week, BSP Assistant Governor Francisco G. Dakila, Jr. said demand for term deposits is expected to increase on the back of the central bank’s recent easing moves.

“As the liquidity goes out to the system, then it can go back to the facilities of the BSP,” Mr. Dakila said.

He said TDF demand in recent weeks likely declined despite the BSP’s policy rate and RRR cuts because of the national government’s bond issuances. — Reicelene Joy N. Ignacio