TDF undersubscribed; rates lower this week

By Lee C. Chipongian

Yields and bids of the central bank’s term deposit facility (TDF) fell this week, with tenders reaching only P29.15 billion against offer of P40 billion.

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All three tenors’ average rate dropped, with the 28-day yields declining to 4.5974 percent versus the previous week’s 4.6380 percent.

Bids for the longest-dated TDF amounted to P8.06 billion, lower than May 22’s P10.37 billion and against offer of P10 billion. The 14-day tenor, still offered at P10 billion, only attracted P6.11 billion, also lower compared to last week’s P8.28 billion.

The average rate for the mid-tenor decreased to 4.5910 percent from 4.5999 percent.

The 7-day TDF, in the meantime, had tenders of P8.06 billion, lower than offer of P10 billion and from last week’s bids of P10.37 billion.

The market is anticipating fresh funds next week when big banks’ reserve requirement ratio (RRR) is reduced by 100 basis points (bps) which is estimated to release around P90 billion of liquidity in the financial system.

The next cuts, 50 bps each, is on June 28 and July 26, for a total of 200 bps. Smaller banks’ RRR will also get reduced by 100 bps on May 31, same day as the universal and commercial banks.

Thrift banks’ RRR reduction is expected to release about P8 billion in the financial system.

In total, after May 31, around P100 billion of additional liquidity will likely swamp the BSP’s auction-based open market operation.

The RRR reduction follows the Monetary Board’s policy rate cut last May 9 of 25 bps.

The BSP’s Monetary Board decided to cut the RRR on May 16 and again on May 23, because it has seen tight liquidity conditions.

They also decided that since inflation has come down and within the two-four percent target range, it was the right time to implement what they still call “operational adjustments.” The RRR reduction will apply to reservable liabilities of both big and smaller banks.