The central bank’s auction of 28-day securities attracted both lower interest rates and bids on Friday, Jan. 20, but market demand is still strong.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila Jr. said there is “persistent strong market demand” for the BSP bills despite continued lower average interest rates.

On Friday, banks and other eligible participants to the securities facility tendered P230.21 billion against BSP’s offer of P190 billion. This was lower compared to Jan. 13’s P235.58 billion bids.

Dakila said the BSP raised the volume offering to P190 billion from P160 billion previously. The Jan. 20 bids was equivalent to 1.21x the volume offered.

Meanwhile, the weighted average interest rate dropped to 6.3464 percent or by 1.2543 basis points (bps) from last week’s 6.3590 percent. The yields accepted narrowed to a range of 6.0000 percent to 6.4000 percent.

“The results of the BSP bill auction remain reflective of market participants’ continued strong interest amid ample liquidity in the financial system,” said Dakila.

Friday’s bid coverage ratio was at 1.2116 versus 1.4624 last week.

The BSP securities facility is one of the central bank’s monetary instruments to manage liquidity. It was first introduced in September 2020.

Before 2019, when the revised BSP Charter restored its authority to issue its own debt securities as part of its instruments for regular monetary operations, the BSP was not allowed to issue debt papers except in cases of extraordinary movements in price levels.

With the BSP bills, the central bank has “greater flexibility” in mopping up excess liquidity to control inflation. As of end-2022, the average inflation was at 5.8 percent, above the government target of two percent to four percent due to global high costs of fuel and other non-oil commodities.