TDF volume higher but yields mixed

Published November 6, 2019, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

The central bank’s weekly term deposit facility (TDF) offered a higher volume this week of ₱120 billion, up ₱40 billion from the previous auction.

MB file photo.
MB file photo.

The Bangko Sentral ng Pilipinas (BSP) has been steady at adjusting TDF sizes by ₱10 billion in October while in July to August, implemented bigger adjustments to the volume from ₱30 billion to ₱100 billion in a month, which was the same time banks’ reserve requirement ratio (RRR) was reduced by 200 basis points (bps).

In the first week of November, another ₱95 billion of extra liquidity was released equivalent to 100 bps cut to the RRR and by the first week of December, a similar amount will flow to the banking system.

During Wednesday’s auction, the TDF was oversubscribed as banks have more cash for placements, while yields continue to close mix.

Total tenders amounted to P127.60 billion with the 7-day tenor attracting the highest bids. Offered at P40 billion – the same as the 14-day and the 28-day – the shortest-dated TDF received P45.67 billion.
Yields were lower at 4.1923 percent from the previous week’s 4.2053 percent.

The 14-day TDF had bids of P41.16 billion with an average rate of 4.2336 percent which was also lower compared to October 30’s 4.2451 percent.

The 28-day received P40.77 billion on Wednesday. It was the only tenor with increased yields at 4.3122 percent from 4.2886 percent.

The TDF rates reflected the BSP’s reduced policy rate of four percent, it was last adjusted on September 26. In total, the Monetary Board cut benchmark rates by 75 bps this year.

BSP Governor Benjamin E. Diokno has communicated to the market that in the November 14 and December 12 policy meetings, it is likely that the decision will be to not change the policy stance and the RRP will remain at four percent.

Because of continued benign inflation outlook, the Monetary Board has also reduced RRR by a total 400 bps by the first week of December, releasing P400 billion additional liquidity in the financial system. The first 200 bps cut had money going into the bonds market mostly, some in the TDF and the RRP.

BSP officials said that there was acceleration in the RRR cuts because inflation environment was decelerating faster than anticipated. The BSP said inflation rate has bottomed out in October at 0.8 percent. The average inflation rate for the third quarter was 1.7 percent. For the first 10 months, inflation average was at 2.6 percent, just a percentage higher than the BSP forecast of 2.5 percent for 2019.

Security Bank Corp. economist Robert Dan Roces, who earlier predicted correct that October inflation will go as low as 0.8 percent (which was the lowest in 42 months or since April 2016) said that he expects inflation to start moving up this month as base effects disappear and Holiday spending ensues.

Roces said the November and December inflation will remain below two percent, for a 2019 average of 2.5 percent which was the same forecast the BSP had as of September 26, the day they cut policy rate anew.

“We see inflation normalizing next year and within the BSP’s target range of two-four percent. We think the BSP’s signaled pause on monetary easing for the year is prudent; and with just 75 bps slashed from 2018’s 175 bps rate hike leaves the central bank ample policy leeway to manage any inflationary spikes in 2020, if at all,” said Roces.