Term deposits undersubscribed as BSP increases auction volume

DEMAND FOR term deposits climbed on Wednesday but remained below program amid a higher offer volume from the Bangko Sentral ng Pilipinas (BSP) following the final phase of cuts to lenders’ reserve ratios.

The central bank received P78.639 billion in tenders for its term deposit facility (TDF) yesterday, below the P100 billion it placed on the auction block and the P66.231 billion recorded a week ago for an P80-billion offer.

Broken down, bids for the seven-day papers totalled P31.247 billion, less than the P40 billion up for auction but more than the P27.755 billion in tenders seen a week ago, which was against a P30-billion program.

Banks asked for yields from 4.5% to 4.99%, a wider range versus the 4.5-4.603 % margin seen the previous week. The average rate settled at 4.5967%, a tad higher than last week’s 4.5679%.

Meanwhile, the 14-day papers received P29.777 billion in tenders, leaving the P30 billion on the auction block undersubscribed. However, this is more than the P16.776 billion in bids logged last week.

Accepted yields settled between 4.5% and 4.795%, a tad wider than the 4.5%-4.7% range sought in the previous week and causing the average rate to increase to 4.6548% from last week’s 4.6277%.

Bids for the 28-day term deposits, on the other hand, reached P27.615 billion, almost reaching the P30 billion on offer. This is also higher than the P21.7 billion in offers seen a week ago for the BSP’s P20-billion offer.

Returns sought by lenders ranged between 4.55% and 4.845%, also wider than last week’s 4.5%-4.75% margin. The average yield inched up to 4.6853% from the 4.6495% the previous week.

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 market expects the BSP’s Monetary Board (MB) to slash interest rates when it reviews policy anew on Aug. 8.

At its June meeting, the MB kept rates unchanged on expectations of steady inflation and economic growth and as it monitors the impact of recent monetary adjustments.

The central bank left the interest rate on the BSP’s overnight reverse repurchase facility untouched at 4.5%. The interest rates on the overnight lending and deposit facilities were likewise held steady at five percent and four percent, respectively.

BSP Governor Benjamin E. Diokno earlier said the regulator may cut policy rates in the second half before moving to reduce banks’ reserve requirement ratio (RRR).

After a 100-basis-point (bp) RRR cut across all banks on May 31, the BSP trimmed the reserve ratios of universal and commercial lenders and thrift banks by another 50 bps last June 28 to 16.5% and 6.5%, respectively.

Another 50-bp reduction was implemented last July 26, bringing the reserve quotas of big banks to 16% and thrift banks to 6% and completing the phased cuts the BSP announced in May. — K.A.N. Vidal