YIELDS on the central bank’s term deposit facility (TDF) dropped as the auction resumed after a month, amid signals of another rate cut and liquidity boost through a reduction in banks’ reserve requirement ratio (RRR) to cushion the economy from the pandemic’s impact.

Bids for the seven-day term papers auctioned off by the Bangko Sentral ng Pilipinas (BSP) totaled P78.496 billion, more than twice the P30 billion on offer as well as the P66.733 billion in tenders seen during the March 11 auction where the BSP offered P50 billion in instruments.

Lenders sought yields ranging from 2.775% to 3%, a wider range compared to the 3.7 to 3.8% band logged during the auction last month. This caused the average rate for the one-week papers to settle at 2.9578%, dropping by 81.79 basis points (bps) from the 3.7757% logged on March 11.

The BSP has yet to resume offering term deposits with 14- and 28-day tenors.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted that the average yield for the seven-day papers is notably lower than the 3.25% key borrowing rate.

“[This is] a positive sign as the markets may have been anticipating already a possible local policy rate cut anytime soon as well as another cut on banks’ RRR, as signaled by BSP Governor [Benjamin E.] Diokno,” Mr. Ricafort said in an e-mailed response.

Mr. Ricafort added that the resumption of a seven-day TDF auction could be a sign there is already excess liquidity in the market following the 200-bp cut in the RRR of big banks which took effect April 3.

Mr. Diokno said that they are “number-crunching” assessments from multilateral bodies such as the International Monetary Fund, the World Bank, and the Asian Development Bank to gauge when a “deeper cut” could be made. He said earlier this week the BSP could bring down the overnight reverse repurchase rate to below the 2018 level of 3% as the coronavirus disease 2019 (COVID-19) crisis worsens.

Currently, the overnight reverse repurchase is at 3.25% while the overnight deposit and lending rates are at 2.75% and 3.75%, respectively, following the 50-bp cut fired off by the Monetary Board (MB) last month to support the economy against the economic fallout caused by the virus.

The BSP has cut rates by 150 bps since 2019, almost completely unwinding the 175 bps in hikes done in 2018.

The MB will meet to discuss policy on May 21.

Meanwhile, the 200-bp cut in universal and commercial banks’ RRR brought it down to 12%. The MB authorized Mr. Diokno to cut RRR by a total of 400 bps for the whole year and will also evaluate bringing down the reserve ratios of other financial institutions, including those for thrift and rural lenders which are at four percent and three percent, respectively.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the resumption of auctions for the shortest TDF tenor is expected in this crisis.

“Normally during crisis situations, shorter tenored ones are preferred. Getting a better return in a short period of time is considered safe and relevant,” Mr. Asuncion said in an e-mail.

The TDF is the central bank’s primary tool to shore up excess liquidity in the financial system and to better guide market interest rates.

To support the banking system and financial stability, the central bank suspended the TDF auctions at the onset of the enhanced community quarantine in Luzon. — Luz Wendy T. Noble