By Lee C. Chipongian
The central bank’s term deposit facility (TDF) attracted mixed yields this week with ₱182.33-billion bids against offer of ₱180 billion.
The Bangko Sentral ng Pilipinas (BSP) increased its TDF offer by ₱30 billion, in the 7-day and 28-day tenors, while maintaining the offer for the mid-tenor.
During yesterday’s auction, the 7-day TDF received ₱64.44 billion versus offer of ₱70 billion which was higher than last week’s offer of ₱50 billion.
The average rate rose to 4.2508 percent from 4.2374 percent. The 14-day tenor kept its ₱50 billion offer size and attracted ₱53.97-billion tenders, more than the previous Wednesday’s ₱47.46 billion.
The average rate dipped to 4.3424 percent from 4.3533 percent. The 29-day TDF had a higher volume this week of ₱60 billion from November 20’s ₱50 billion. Bids amounted to ₱63.91 billion.
Yields were down to 4.3324 percent from 4.3592 percent. The BSP has been busy adjusting and tweaking the TDF volume every week following three cycles of interest rates cut and the reduction of banks’ reserve requirement ratio by 400 basis points.
To complement the TDF’s liquidity-siphoning off function, the BSP will be issuing its own bonds by the second quarter of 2020 but will conduct market-sounding exercises and a soft launch in the first quarter next year.
The BSP is currently reviewing tenors for its bond issuance and the frequecy of issuance.
The central bank is planning to use a combination of debt instruments and TDF to manage liquidity in the financial system, and thereby keeping inflation low and stable.
BSP Governor Benjamin E. Diokno said the timing and frequency of when to sell its securities will be in line with its inflation targetting framework. For 2020, the BSP forecasts an average inflation of 2.9 percent, well within the two-four percent target range.
One of possible set up that the BSP is looking at is that the bonds is for mopping up in bulk and the overnight bills is for fine-tuning market rates, and in between the overnight and a longer-dated tenor, is the TDF.
This framework assures there will be no competition between the BSP and the Bureau of the Treasury. Unlike the government which sells bonds for financing, the BSP’s debt instruments is for monetary management.
The amended New Central Bank Act was signed into law last February 14, as Republic Act No. 11211. The restoration of the authority to issue central bank debt papers empowers the BSP to use this instrument particularly during times when there are structural surplus liquidity.
For years, since the BSP could not issue its own debt papers, there was an agreement between the central bank and the National Government that since only the government could tap the bonds market, the BSP will concentrate on the loans market.