Weekly mop up of inflationary cash starting to work, says BSP chief

The amount of excess cash being offered by the country’s financial institutions as deposits in the central bank’s liquidity management facility have begun to align themselves with the weekly volumes tendered by regulators — potentially an early indication that efforts to rein in inflation-promoting idle funds are working.

According to Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr., recent trends that show a narrowing over- or undersubscription gap between banks’ tenders and the regulator’s offers for its term deposit facility points to the effectiveness of the scheme.

“It tells me that excess liquidity in the system has greatly declined and is now more stable; that BSP liquidity forecasting is becoming quite accurate; and that TDF auctions are effective in mopping up the excess liquidity,” Espenilla said in a mobile phone message to the Inquirer.

As such, he expects the term deposit window — which has been tasked with mopping up the excess cash that will be freed up over time as the central bank lowers banks’ statutory reserves — to become more effective in helping keep local prices of goods and services stable.

His comments come after the BSP announced on Wednesday that financial institutions submitted a total of P111.9 billion in bids for the P110 billion on offer under the inflation-fighting term deposit scheme.

Volume-wise, the total tenders were tighter that the previous week where banks submitted P133 billion in bids for the P110 billion on offer. Results from recent weeks have also affirmed this downtrend in the amount that banks were offering — a sign that excess cash in the financial system is successfully being “sterilized.”

On Wednesday, banks tendered P50.4 billion in bids for the P50 billion on offer for the 7-day central bank instrument, resulting in a full award. The average yield maintained its uptrend at 3.3967 percent versus the previous week’s 3.3018 percent.

For the 14-day facility, banks submitted P38.1 billion in bids for the P40 billion on offer, resulting in the central bank accepting all the bids. The yield stood at an average of 3.4370 percent, which will also higher than the previous week’s 3.4053 percent.

Finally, the 28-day facility saw banks submitting P24.4 billion in bids for the P20 billion on offer, resulting in a full away by the central bank, and an average yield of 3.4097 percent. This was slightly lower than the previous week’s 3.4192 percent.

“Together, these developments enhance our ability to manage market interest rates to achieve our policy objectives,” Espenilla said. /je