The market preference for the central bank’s 7-day term deposit facility (TDF) was evident during the auction on Wednesday, Dec. 28, with mix results in favor of the shorter tenor, according to Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila Jr.
Dakila commented that banks are also holding on to their cash ahead of the long New Year weekend.
“Eligible counterparties’ inclination for the shorter tenor was observed amid preference for cash over the upcoming holidays,” said Dakila.
The TDF auction on Wednesday received P362.59 billion bids against an offer size of P360 billion. Both tenders and volume are higher compared to the previous week’s P260 billion offer and P326.38 billion bids.
The 7-day TDF was offered at P200 billion, higher than P150 billion last Dec. 21. It attracted P206.80 billion tenders, also up from P179.27 billion last week.
The weighted average interest rate (WAIR) for the 7-day rose to 6.2860 percent from 6.2466 percent, but the bid coverage ratio was lower at 1.0340 versus 1.1951 previously due to less demand.
The 14-day tenor was undersubscribed on Wednesday with just P155.79 billion bids against offer of P160 billion. The offer and bids were lower compared to Dec. 21’s P110 billion and P147.11 billion.
The yield continued to increase at 6.3803 percent from 6.3323 percent while the bid coverage ratio dropped to 0.9737 from 1.3374 for the 14-day TDF.
While the BSP raised the volume offering in the TDF auction to P360 billion from P260 billion, there was a “slight undersubscription” in the 14-day TDF.
“(The) bid-to-cover ratios (were) at 1.03x and 0.97x the respective offer volumes for the 7-day and 14-day TDF. Nonetheless, total tenders received reached P362.594 billion, which was well within the BSP’s expected volume range,” said Dakila. Of the total bids received, the BSP accepted P355.79 billion.
Meantime, the WAIR reflected the BSP’s recent rate hikes. “The yields accepted for both tenors likewise shifted higher but narrowed. The 7-day tenor moved to a range of 6.0750-6.4000 percent, while that for the 14-day tenor stood at 6.2000-6.6000 percent,” said Dakila.
The BSP’s policy-making body, the Monetary Board, raised the policy rate by another 50 basis points (bps) last Dec. 15. The current key rate is at 5.5 percent. Since May this year, the BSP has lifted the key rate by a cumulative 350 bps.
Through the TDF and other open market operations, the BSP mops up excess liquidity to control inflation which remains above the target at 5.6 percent average as of end-November versus the two percent to four percent target band.
The TDF also brings the policy rate closer to market rates. “The results of the TDF auction reflected the pass-through of the 50-bp rate hike by the BSP (on Dec. 15),” reiterated Dakila.