Tight liquidity in the local financial system for the second week in a row pushed yields on the central bank’s anti-inflation management facility higher on Wednesday, aggravated by banks’ muted interest in the short term deposits.
At the weekly auction for the term deposit facility of the Bangko Sentral ng Pilipinas, interest rates across all three tenors rose even as the longer-dated instruments continued to be undersubscribed, echoing the previous week’s results.
“There is no [cash] volume in the market,” said the treasurer of a commercial bank speaking on condition of anonymity. “And there is little appetite among banks for the TDF right now. But it’s more a situation of tight liquidity.”
The central bank had been using the term deposit facility in recent months as a proxy for its overnight borrowing facility in a bid to sterilize excess cash in the financial system that could further aggravate the country’s five-year high inflation rate.
During Wednesday’s auction, the seven-day instrument attracted P45.8 billion worth of bids for the P40 billion that the central bank had offered. The regulator accepted a total of P40 billion, with the yield rising to 3.7523 percent from last week’s 3.6927 percent.
The 14-day instrument, on the other hand, drew only P31.9 billion in bids from banks for the P40 billion that the BSP offered, repeating last week’s undersubscribed situation. The central bank accepted all P31.9 billion in bids, with the yield rising to 3.8689 percent from last Wednesday’s 3.7342 percent.
Finally, the 28-day facility attracted only P14.8 billion worth of bids from banks, despite the P20 billion that the central bank was willing to accept. In the end, the regulator accepted all P14.8 billion and the yield rose to 3.8471 percent from last week’s 3.7326 percent.
Recently, BSP Governor Nestor Espenilla Jr. said monetary authorities will continue with its policy of letting the market determine the yields on the term deposit facility. He noted that the steady upward trend in the interest rates for the three tenors helps rein in inflation despite the central bank’s perceived delay in raising its own key rates in response to rising consumer prices.
Prices of goods and services rose by 4.6 percent last month — its fastest pace in at least five years — but authorities noted that the month-on-month inflation rate it actually plateauing. The central bank expects the inflation rate to normalize by next year.