By Melissa Luz T. Lopez, Senior Reporter
DEMAND FOR term deposits nearly doubled this week, driving yields down as more banks wanted to park their excess funds under the central bank’s watch.
Wednesday’s auction of term deposits received P63.033 billion in tenders, almost twice the P37.125 billion worth of bids put forward a week ago and logging well above the P30 billion which the Bangko Sentral ng Pilipinas (BSP) wanted to sell.
Market players scrambled to park more funds under the term deposit facility’s (TDF) one- and two-week maturities as they stand armed with excess cash that they do not expect to deploy for loans or investments anytime soon.
Offers for the seven-day tenor soared yesterday, with demand rising to P40.46 billion from the P22.985 billion in bids a week ago to shoot past the P20-billion auction amount.
The banks also asked for lower returns ranging from 4.75-5% to get even small gains from their extra cash. This led to a lower average yield of 4.9333%, down by around five basis points from last week’s 4.9831%.
Appetite for the 14-day term deposits also surged on Wednesday, with the central bank’s P10-billion offer met by P22.573 billion in tenders. This soared past the P14.14 billion in bids received during the March 27 exercise.
In turn, the average yield on the tenor dropped to 4.9969% from the 5.0567% fetched a week ago.
Since June 2016, the TDF has been the central bank’s main tool to capture excess funds in the financial system. Through the weekly auctions, the BSP wants to bring market and interbank rates closer to their desired range through the yields which they accept.
The Monetary Board led by new BSP Governor Benjamin E. Diokno voted to keep key interest rates at the 4.25-5.25% range last month, which is also used as the range for accepted yields under the TDF. Policy makers cited the need to confirm if inflation is indeed on its way down, even if the downtrend has been sustained as of the first two months of 2019.
The decline in TDF rates also mirror the movement of yields on Treasury bills, which have been on a downtrend for several weeks now. National Treasurer Rosalia V. De Leon said interest rates for short-term debt papers are dropping amid expectations of easing inflation, with demand now shifting in favor of long-term instruments.
The central bank has also decided to stop the weekly offerings of 28-day term deposits for the second straight week. BSP Deputy Governor Diwa C. Guinigundo previously explained that this was in anticipation of pale demand as banks hold on to cash to service requirements for the annual income tax filing deadline on April 15, as well as the Holy Week break.
Mr. Guinigundo has said that the financial system remains liquid, with the weekly TDF surpluses proving that banks continue to sit on piles of cash despite some calls that money supply is tight.