BSP’s TDF auction undersubscribed; yields are mixed

By Lee C. Chipongian

The central bank’s term deposit facility (TDF) yesterday ended with mixed rates this week while bids fell below offer for all three tenors.

Bangko Sentral ng Pilipinas (BSP) logo

Total tenders amounted to P35.22 billion, below the offer. The TDF volume of P50 billion is lower Wednesday compared to December 19’s P70 billion. The adjustments were: the 7-day offer was at P30 billion from last week’s P40 billion; the 14-day at P10 billion from P20 billion; the 28-day at P10 billion has same volume as before.

The Bangko Sentral ng Pilipinas (BSP) had expected the slow demand from banks for the Christmas break and ahead of the new year.

During Wednesday’s TDF auction, 7-day tenor had bids of only P18.71 billion vrsus offer of P30 billion. Yields increased to 5.1903 percent from last week’s 5.1462 percent.

The 14-day TDF was also undersubscribed at P8.69 billion against offer of P10 billion. The average rate dipped to 5.2014 percent from 5.2188 percent last Wednesday.

The 28-day was also below offer at P7.80 billion while yields went up to 5.2094 percent from 5.2092 percent last week.

The interest rate corridor (IRC) was adopted by the BSP two years ago to expand its policy toolkit for monetary control. The TDF, in particular, allowed the BSP to reduce banks’ reserve requirement ratio twice this year as – according to BSP Governor Nestor A. Espenilla Jr. – part of operational adjustments.

The IRC helps the BSP guide short-term market rates closer to the overnight reverse repurchase borrowing rate.

For five straight Monetary Board policy meetings, the BSP increased benchmark overnight rates by a cumulative 175 basis points to temper inflation rise and to re-anchor inflation expectations as well as to manage exchange rate volatilities.