The auction of 28-day central bank securities was undersubscribed on Friday, Nov. 25, with P109.47 billion bids versus the offer of P120 billion.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila Jr. said the auction only attracted about 0.91x of the volume offered.
“The undersubscription in (the) BSP bill auction could be attributed to the increasing demand for cash by eligible counterparties in preparation for the December holidays,” Dakila said Friday.
The BSP bills’ weighted average interest rate continued to increase at 6.0031 percent, up by 20.2627 basis points (bps) from Nov. 18’s 5.4900 percent.
Dakila noted that the yields accepted shifted higher but narrowed marginally to a range of 5.7950 percent to 6.2000 percent.
The BSP bills only has one tenor or the 28-days since it was introduced in September 2020. It used to be the 28-day term deposit facility.
The securities facility helps the BSP manage inflation by mopping up liquidity from the financial system.
The BSP on Nov. 17 increased the overnight borrowing rate by 75 bps to five percent. The interest rates on the overnight deposit and lending facilities were also raised to 4.5 percent and 5.5 percent, respectively.
Last October, the BSP expanded the access of trust entities with non-resident funds to the securities facilty to siphon off more excess liquidity or money supply.
The new circular effectively allowed unit investment trust funds (UITFs) of eligible trust departments of banks, regardless of whether the UITFs have funds from non-residents, to invest in BSP securities via the secondary market.
The BSP said the measure ensures the tradability and viability of BSP securities as a highly liquid instrument, thus allowing for better price discovery and monetary policy transmission.