By Lee C. Chipongian
The central bank’s 14-day term deposit facility (TDF) tenor will be offered this quarter, along with the return of the 28-day TDF.
Banking sources said they expect the Bangko Sentral ng Pilipinas (BSP) to introduce a mid-tenor or the 14-day TDF in March of this year to test the market for its appetite which will depend on liquidity requirements and banks’ preferences.
The 28-day TDF, in the meantime, will be reoffered next month after the BSP removed the tenor following months of consistent undersubscriptions.
By the end of the first quarter, the BSP will have a line-up of three tenors for its TDF auction: the 7-day, the new 14-day and the 28-day.
Since December 20, only the 7-day term deposit is auctioned off. The market has continued to swamp the lone TDF with tenders. The recent weeks’ high demand saw its yield steadily going down.
Last week, the entire P40 billion offer for the 7-day TDF was awarded to banks. The BSP received tenders amounting to P125.564 billion which was lower than the previous week’s P127.119 billion. Yields ranged from 2.9375 percent to 3.1 percent. The weighted average rate was trimmed to 3.1391 percent from the previous week’s 3.2223 percent.
The TDF is one of the BSP’s primary liquidity absorption facilities. It was first implemented on June 3 last year after shifting to the interest rate corridor (IRC) framework which was a system for guiding short-term market rates towards the BSP policy interest rate.
BSP Governor Nestor A. Espenilla Jr. said the BSP’s open market operations are being enhanced and the IRC refined to “ensure monetary policy adjustments are transmitted effectively to the economy.”
During Espenilla’s first annual Bankers’ Night address as BSP chief last Friday, he reiterated the BSP’s pursuit of proactive prudential reforms, citing the recent adoption of minimum leverage ratio requirements which will take effect on July 1.
He said the BSP will “complete (the) roll-out of the liquidity management framework” which includes amendments to the Basel III liquidity coverage ratio (LCR) standard, issuance of complementary minimum liquidity ratio and net stable funding ratio standards, and intraday liquidity reporting guidelines.
“It is important that markets discover prices on their own and for self-correcting mechanisms to be encouraged,” said Espenilla. “We are confident that this will increase financial markets’ abilities to absorb shocks… so that the BSP can focus on its core mandates.”
The TDF improves the market’s price discovery. When it was introduced in June last year, the BSP offered only two tenors, with the possibility of a third tenor always on the table.