Cash-rich banks continued to trek back to the Bangko Sentral ng Pilipinas for the second week in a row, tendering P133 billion in bids for the P110 billion on offer for the regulator’s liquidity control facility.
Interest was particularly strong among financial institutions for the 14- and 28-day instruments of the central bank’s weekly term deposit facility auction while the 7-day window was slightly undersubscribed – a reversal from the trend observed in recent months where banks’ bids were focused more on the shortest-tenored facility, while usually leaving the longer-dated instruments undersubscribed.
The term deposit facility is a borrowing window used by the BSP to “sterilize” excess cash circulating in the financial system in a bid to help control the county’s rising inflation rate. Its role became more critical in recent weeks since regulators cut banks’ statutory reserve requirements by one percentage point last February, resulting in P90 billion being released into the market.
Aggressive tenders
According to the central bank, financial institutions tendered P47.1 billion in bids for the P50 billion on offer for the 7-day term deposit facility on Wednesday. The weighted average yield stood at 3.3018 percent, representing a continued increase over the previous week’s yield of 3.2657 percent.
For the 14-day facility, banks tendered P55.8 billion worth of bids for the P40 billion in offer. The average yield for the window stood at 3.4053 percent, which was higher than last week’s 3.3575 percent.
Finally, banks submitted the most aggressive tenders for the 28-day facility with P30.1 billion in bids for the P20 billion on offer. The average yield stood at 3.4192 percent, representing a slight decrease over the previous week’s yield of 3.4229 percent.
Increased yields
As in previous weeks, both the 7- and 14-day tenors showed an increase in yields while the 38-day facility experienced a slight drop as banks’ interest in them continued to rise.
BSP Governor Nestor Espenilla Jr. had predicted that banks would return to the term deposit window after submitting less tenders ahead of the Holy Week break, when demand for cash normally spikes among Filipinos.
But unlike the reserve requirement where banks are compelled to immobilize a portion of their deposits in their vaults, the term deposit facility is a voluntary scheme and relies on banks being attracted to the yield being offered by the central bank./lb