Banks still not biting BSP’s liquidity bait

Banks again shied away from the term deposit facility (TDF) offered by the Bangko Sentral ng Pilipinas (BSP), with the longer-term borrowing window receiving the most tepid response even if supplies have already been reduced.

The BSP offered P110 billion for the 28-day TDF, yet banks only tendered P84.415 billion during the auction on Wednesday.

It was the first sale after the BSP offered a lower volume from P140 billion previously.

The BSP accepted all bids, with the facility fetching a yield between 3.45 percent and 3.5 percent.

The seven-day TDF, on the other hand, was oversubscribed, with P42.918 billion in tenders for the P40-billion offering, which the BSP all awarded.

The accepted yield was within the 3.2-3.398 percent range.

Next week, the BSP will also offer a total of P150 billion, down from the P180-billion volume offered until last month.

Last week, BSP Deputy Governor Diwa C. Guinigundo explained they decided to slash the volume of the 28-day TDF “based on the recognition that the sustained economic expansion has also given rise to higher demand for credit.”

“Banks are now lending more to their clients instead of placing their excess funds with the BSP. Corporates are also using their peso funds in the banks to buy foreign exchange for their import requirements; some of them have also been investing outside the Philippines. Some are prepaying their external obligations,” Guinigundo has said.

He said “the BSP, therefore, does not have to do as much mopping up as before because funds are being used for productive uses instead of just being parked with the BSP.”

Launched in June last year, the weekly TDF auctions form part of the BSP’s introduction of the interest rate corridor aimed at bringing market rates closer to the policy rate of 3 percent and keeping in check inflationary pressures.