YIELDS ON the central bank’s term deposit facility (TDF) slipped after fresh signals from the central bank of a “prudent pause” in monetary easing.

Total tenders for the one-week term deposits offered by the Bangko Sentral ng Pilipinas (BSP) hit P231.351 billion on Wednesday, more than twice the P100-billion offering and also surpassing the P181.221 billion in bids seen last week for a P70-billion offer.

Returns sought by banks for the seven-day deposits ranged from 2.25% to 2.2625%, a slimmer band compared to the 2.25% to 2.29% logged on May 6. With this, the average rate settled at 2.2578%, slipping by 0.76 basis point (bps) from the 2.2654% fetched a week ago.

“The auction results are consistent with current ample liquidity in the financial system and market preference for safe, highly liquid assets,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.

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

Offerings of term deposits with longer tenors of 14 and 28 days remain suspended. The BSP stopped offering term deposits at the onset of the enhanced community quarantine (ECQ) in Luzon in March to support the banking system.

Recent signals from BSP Governor Benjamin E. Diokno that the central bank will hold off on further easing may have caused the sustained drop in TDF yields, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“The 7-day BSP TDF auction yield was marginally lower week-on-week after BSP Governor Diokno signalled pause in monetary policy easing at the moment,” Mr. Ricafort said in an e-mail.

He added that term deposits continue to be among the investment options with higher interest returns for financial firms holding excess cash, as shown by the sustained surge in bids.

Mr. Diokno said earlier this week a prudent pause will allow the central bank to gauge how the series of policy moves already implemented by the Monetary Board have affected financial institutions.

The central bank has already cut benchmark rates by 125 bps this year following the 75 bps in reductions in 2019. This brought the key policy rate or the overnight reverse repurchase rate to a record low of 2.75% while overnight lending and deposit rates now stand at 3.25% and 2.25%.

The BSP also reduced the reserve requirement ratio of big banks by 200 bps to 12% effective last month. Mr. Diokno has been authorized to cut RRR by a total of 400 bps this year. The minimum liquidity ratio of stand-alone thrift and rural banks has also been slashed by 400 bps to 16% until yearend. — L.W.T. Noble