By Lee C. Chipongian
The central bank offered only two tenors of its term deposit facility (TDF) yesterday but still attracted more bids than offer of P30 billion at P37.12 billion.
This week was the second time this March that the Bangko Sentral ng Pilipinas (BSP) set aside the 28-day tenor and only offered the shorter-dated TDFs, the 7-days and 14-days. The first time was last March 13 when it reduced the offer from P50 billion to P40 billion, and this week where it was even lower at P30 billion from P50 billion last March 20.
BSP Deputy Governor Diwa C. Guinigundo said the basis for cutting down on the TDF volume this month was that banks will be busy hoarding cash ahead of April’s Holy Week and the tax season.
Banks would want to keep their cash close since their customers would need the funds for the long Lent off-days. These bank funds – most of it – are deposited back to the BSP resulting to adjustments in the volume of TDF offering.
Guinigundo said there is liquidity in the market. “One of the reasons why it looks like there is tightness in liquidity in the market is (because of) the government — (it) absorbed P235 billion in terms of RTBs (retail treasury bonds) and then the weekly auction of T-bills (treasury bills).” He said that banks deposit the proceeds with the BSP.
“In effect, it makes the NG (National Government) part of the open market operations (of the BSP),” said Guinigundo, since the government mop up liquidity from the market to deposit to the BSP.
“It’s no different with the banks depositing money with the BSP to the TDF, or ODF or RRP,” said Guinigundo. He said NG deposited funds with the BSP will be spent on state expenses and released back into the market. “So, the initial so-called ‘tightness’ in the market is very temporary,” he reiterated.
Guinigundo said that foreign exchange supply and demand are also affecting liquidity, but also on a temporary basis. When capital are taken out of the domestic market due to factors such as the US-China trade issues which contributes to market negative sentiment, investors will have to unload their peso holdings to buy US dollar. “That will also siphon off liquidity,” he said.