Seeing low demand, BSP drops 2 TDFs ahead of Holy Week

Published April 11, 2019, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) will only offer one tenor of term deposit facility (TDF) on April 17, or the 7-days, as they expect demand to further slack ahead of the long Lent weekend.

MB file photo.
MB file photo.

The BSP has already sidelined the 28-day TDF since March 27 with the National Government issuing retail treasury bonds and siphoning off liquidity from the market.

Holy Week off-days begins on April 18, Maundy Thursday until April 21, Easter Sunday.

Next week’s 15-day TDF auction, according to the BSP, “offered tenors (that) were adjusted in view of the regular public holidays on May 1 and June 12, which fall on a Wednesday.”

The last time the 28-day tenor was offered was on March 20 for P10 billion while the 14-day had P10 billion last April 10.

The BSP adopted the interest rate corridor system (IRC) in mid-2016 to guide short-term market rates towards the BSP policy interest rate.

The BSP decides on the volume of the TDF on a regular basis depending on liquidity demand. It has adopted a liquidity forecasting method that indicate how much of amount offered the market could take or require. Its lowest auction size was P10 billion which was next week, and the highest was P180 billion in 2017.

Last Wednesday, the TDF auction had lower yields and subscriptions as banks hoard cash ahead of Holy Week. The total volume of bids reached P50.3 billion versus offer of P30 billion, but this was lower compared to last week’s P63.03-billion bids.

The 7-day TDF had P29.70 billion worth of tenders compared to P40.46 billion last April 3. Yields dropped to 4.8943 percent from 4.9333 percent last week. The 14-day tenor had bids of P20.62 billion, also lower than last week’s P22.57 billion. Average rate fell to 4.9148 percent from 4.9969 percent.

With the IRC system the BSP reformed its open market facilities by the introduction of the standing liquidity facilities, namely, the overnight lending facility and the overnight deposit facility, the overnight RRP facility, and the TDF.

The interest rates for the standing liquidity facilities form the upper and lower bound of the corridor while the overnight RRP rate is set at the middle of the corridor. The RRP rate which is the policy rate is currently at 4.75 percent, the lending rate at 5.25 percent and the deposit rate at 4.25 percent.

On Wednesday, yields of the two-tenor term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) fell on low subscriptions as banks hoard cash ahead of the long Lent holiday next week.

With P30 billion on offer – that is P20 billion for the 7-days and P10 billion for the 14-days – bids reached P50.32 billion which was lower compared to the previous Wednesday’s P63.03 billion.

The 7-day TDF attracted P29.70 billion in tenders compared to P40.46 billion last April 3. Its average rate fell to 4.8943 percent from 4.9333 percent last week.

The 14-day tenor, in the meantime, had bids of P20.62 billion, also lower than last week’s P22.57 billion. Yields were down to 4.9148 percent from 4.9969 percent.

BSP Deputy Governor Diwa C. Guinigundo said that they will continue to make adjustments to the TDF – such as in removing the longer dated 28-day tenor – to tune in to the market’s appetite.
The last time the 28-day TDF was in the weekly auction was March 20, at P10 billion.

As previously explained by Guinigundo, one of the reasons they decided to sideline the 28-day tenor was because the National Government’s own offering of retail treasury bonds worth P235 billion has already mopped up liquidity from the market, which is what the BSP’s auction-based open market operation was doing in the first place, to siphon off excess liquidity in the financial system.

He said that since the government is spending capital for infrastructure development, liquidity is being taken out of the BSP and into the markets such as banks.

Also, with Holy Week just a week away, banks are keeping their cash close since bank clients usually have a higher demand for cash during Lent season.