Market laps up term deposits as liquidity nears normal

The Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) auction Wednesday was again oversubscribed such that all P90 billion offered were sold to the market.

Three months since the BSP started auctioning off term deposits in line with the implementation of the interest rate corridor (IRC), Governor Amando M. Tetangco Jr. said they were finally seeing gains in mopping up excess liquidity in the system.

Banks and trust institutions tendered a total of P236.4 billion in bids—P191.7 billion for the P80 billion worth of 28-day term deposits, and P44.7 billion for the P10-billion seven-day facility.

For the 28-day facility, the BSP accepted a yield ranging between 2.5 and 2.525 percent, while the accepted yield remained at 2.5 percent for the seven-day.

“We’ve calibrated the auction sizes so that market rate movements that will close the gap with our policy rate would also be gradual,” Tetangco said in a text message to reporters, referring to the latest hike in total volume from P70 billion previously. In June, the BSP offered only P30 billion.

“We have been observing that the bid to cover ratio has been declining gradually, from 5.86 on June 8 to  2.53 last week and further to 2.396 today for the 28-day TDF. This reflects greater market familiarity with the operational aspect of IRC. Moreover, it also shows the continued absorption of liquidity via the TDF,” Tetangco added.

Separately, BSP Deputy Governor Diwa C. Guinigundo said interest rates could finally move more decisively toward the policy rate in three months.

The TDF auctions were aimed at mopping up excess liquidity and tempering volatility in market rates by moving them toward the policy rate of 3 percent. Ben O. de Vera