By Lee C. Chipongian
Expecting stronger monetary action next week, banks poured bids on the shorter-dated central bank term deposit facility (TDF) to drive up pricing based on variable-rate tender which amounted to over P60 billion against offer of P40 billion.
Overall the three-tenor TDF auction fetched bids amounting to P87.25 billion versus offer of P70 billion, with the 7-days as the only oversubscribed tenor on Wednesday.
The TDF market is anticipating another policy rate hike next Thursday, September 27, of 25 to 50 basis points to rein in high inflation and temper exchange rate volatility. The Monetary Board has already hiked rates by 100 basis points as of August 9.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said that even if they have reduced the TDF volume from P100 billion to P70 billion this week, they are still mopping up excess liquidity.
“OMO (open market operations) is done regularly with some up or downward adjustment depending on some periodic changes in the liquidity situation,” he said.
Guinigundo added that the BSP is continuously fine-tuning OMO and auction-based open market facilities such as the TDF. The TDF volume is reviewed and determined by liquidity forecasts every week. The TDF is a liquidity absorption facility used by the BSP for liquidity management.
The central bank cut TDF volume by P30 billion or from P100 billion to P70 billion. The P100 billion volume has been in place since June 6. BSP Governor Nestor A. Espenilla Jr. said last week that they reduced the offer as they were seeing tighter peso liquidity as a result of its foreign exchange market operations.
The market could read this pronouncement as signalling another interest rate increase next week during the Monetary Board’s sixth policy meeting for the year.
During Wednesday’s TDF auction, average rates were mixed after five weeks of consistent upward bias.
Bids, on the other hand, were also mixed with the 7-days attracting a strong demand with P60.32 billion worth of tenders against offer of P40 billion. It is higher than last week’s P48 billion. It is also the only tenor whose volume was not reduced. The BSP awarded P40 billion yesterday. The 7-days’ yield was up to 4.3884 percent from last week’s 4.3744 percent.
Both the 14-days and 28-days have lower offers this week of P20 billion and P10 billion compared to the previous P40 billion and P20 billion, respectively.
The 14-days had tenders of P17.44 billion while the BSP awarded P17.09 billion. The rate was up at 4.4339 percent from 4.4224 percent of the previous Wednesday.
The 28-day offer, in the meantime, was also below offer at P9.48 billion, and awarded at P9.28 billion. Average rate is down to 4.4754 percent from 4.4824 percent last week.
The BSP has been encouraging market rates to adjust closer to the benchmark rate. Following the most recent rate hike of 50 bps last August 9, the overnight reverse repurchase rate is now at four percent.
Aside from term deposits, the BSP conducts other OMO such as foreign exchange swaps, reverse repurchase transactions, and outright purchases and sale of securities.