By Lee C. Chipongian
The P60-billion auction of term deposit facility (TDF) attracted higher bids on Wednesday with tenders amounting to P92.12 billion.
The weighted average rates were mixed, with both 7-day and 14-day tenors fetching lower rates of 3.4273 percent and 3.4551 percent, respectively, from the previous week’s 3.4434 percent and 3.470 percent. The 28-day, in the meantime, had a higher yield of 3.4732 percent from 3.4650 percent.
The Bangko Sentral ng Pilipinas (BSP) reduced the TDF volume this week by P30 billion ahead of the anticipated demand for liquidity because of the May 14 baranggay and Sanguniang Kabataan elections.
BSP officials said the auction size will eventually return to P110 billion. The volume was reduced to P90 billion on April 25 and further cut to P60 billion on May 9.
BSP deputy governor Diwa C. Guinigundo said bank clients’ TDF investments are usually affected when liquidity is expected to be diverted. “This is no different from our decision (previously) in line with the Holy Week and May 1 holidays,” he said.
On Wednesday, the 7-day tenor had bids amounting to P53 billion versus offer of P30 billion. The P14-day was also oversubscribed with P33 billion against a P20 billion offer. The longest-dated TDF which only had P10 billion auctioned off, attracted much lower bids of P6.09 billion.
As intended by the central bank, the TDF is a “key liquidity absorption facility for liquidity management.” It is part of the BSP’s set of tools to manage the financial system’s money supply.
Since the BSP cannot issue its own debt instruments yet, it uses its open market operations such as the TDF to “withdraw a large part of the structural liquidity from the financial system to bring market rates closer to the BSP policy rate.”
The BSP charter amendment which has been pending for some time, includes provisions to allow the central bank to issue debt papers in the future to improve its liquidity management.