By Lee C. Chipongian
The average yields of the 7- and 14-day term deposit facility (TDF) fell this week with a mixed resulting bids.
The Bangko Sentral ng Pilipinas (BSP) has returned the longer-dated 28-day tenor yesterday and offered it at P10 billion, and getting P11.14 billion in tenders. The weighted average rate for the revived TDF is 4.6495 percent. The last time the 28-day was part of the weekly auction was March 20.
The 7-day tenor on Wednesday attracted P17.48 billion bids versus offer of P20 billion. It was also lower compared to the previous auction’s P20.53 billion tenders. The 7-day rate was down to 4.5695 percent from 4.6925 percent last May 8.
In the meantime, the 14-day, offered at P10 billion, had tenders of P14.26 billion which less than the previous week’s P18 billion. Yields fell to 4.6013 percent from 4.6961 percent.
The TDF is the BSP’s prime liquidity-control tool and one of the reasons why it cut reserve requirement ratio (RRR) last year by 200 basis points, confident of the TDF’s liquidity-mopping ability to render the move policy neutral, despite that at the time, inflation was on the rise.
ING Bank senior economist Nicholas Mapa, in a commentary, said with inflation within the government’s two-four percent target, the BSP will “finally cut RRP with growth hitting a speed bump and slowing to 5.6 (first quarter).”
“The BSP took pains to convince the market that adjustments to the RRR remain operational in nature and that the BSP policy stance would be signaled by changes to the policy rate,” Mapa noted.
He said the BSP will be reducing the RRR in line with the policy stance which saw a 25 bps reduction last week after 2018’s 175 bps rate increase to fight inflation.
“(We) feel this leaves the door wide open for a RRR reduction in the near term, with this Thursday a real possibility,” he said. The Monetary Board has scheduled an RRR cut proposal discussion this week.
“The BSP moved to slash policy rates to give the economy a shot in the arm now that inflation is within target and projected to remain so even until 2020.
However, given that the financial system has a mere P290 billion parked at BSP overnight facilities, the RRP reduction of 25 bps would do little by way of funneling additional funds to productive ventures,” said Mapa.
BSP Deputy Governor Diwa C. Guinigundo said last week that it will be harder to say if an RRR cut this time around could be viewed as policy neutral but that the Monetary Board will be considering its next RRR move as both an operational adjustment and as a monetary policy move.
The BSP’s reasoning in 2018, after it reduced RRR a second time, was to call the move an operational adjustment and part of its shift toward a more market-based implementation of monetary policy.
Also last year, the Monetary Board stressed that the “calibrated reductions” in RRR is not to signal a change in policy stance.