BSP’s TDF rates up after BSP’s surprise rate hike

Published July 20, 2022, 4:10 PM

by Lee C. Chipongian

The central bank’s two-tenor term deposit facility (TDF) attracted higher average interest rates on Wednesday, July 20, following the Monetary Board’s off-cycle move to raise the policy rate by 75 basis points (bps) last week.

Based on Bangko Sentral ng Pilipinas (BSP) data, the TDF were undersubscribed with bids of P321.57 billion against offer of P330 billion. The tenders were lower compared to July 13’s auction where the BSP received P384.60 billion bid offer.

BSP building and logo/Reuters

BSP Deputy Governor Francisco G. Dakila Jr. said on Wednesday that the results of the auction showed partial pass-through of the policy rate to market rates. This was “amid ample overall liquidity in the financial system” which allows the BSP to mop up to better control high inflation, he said.

The 7-day tenor was still offered at P160 billion and it received P151.95 billion bids, down from the previous week’s P203.11 billion. The weighted average interest rate (WAIR) increased to 3.2459 percent from last week’s 2.6838 percent.

As for the 14-day TDF, the tenders amounted to P169.62 billion against an unchanged P170 billion offer. This was lower from the previous week’s P181.49 billion. The yield also rose to 3.3417 percent from 2.7235 percent.

“Both tenors were marginally undersubscribed with bid-to-cover ratios at 0.950x for the 7-day TDF and 0.998x for the 14-day TDF,” said Dakila.

Dakila also noted that the WAIR of both tenors increased as an impact of the 75-bp hike in the policy interest rate last July 14.

The WAIR for the 7-day tenor rose by 56.2107 bps to 3.2459 percent while the 14-day tenor increased by 61.8275 bps to 3.3417 percent. “The yields accepted in both tenors likewise shifted higher and widened to a range of 2.7500-3.6900 percent in the 7-day TDF and 2.7750-3.7200 percent in the 14-day TDF,” said Dakila.

The BSP first implemented the TDF in 2016 when it adopted the interest rate corridor system to improve its liquidity management tools to help control inflation and to bring market rates closer to the BSP policy rate.