BSP tests banks’ appetite for longer term deposits

Almost two months after it shut down a key liquidity management tool, the Bangko Sentral ng Pilipinas yesterday decided to reopen its 28-day term deposit facility to satisfy “strong demand” from banks for more investment options for their idle cash.

In its weekly notice to banks, the BSP said that next week’s tender for deposits would include a small P20-billion window for the one-month facility that was last used in mid-December 2017.
BSP Governor Nestor Espenilla said there was a “strong overall demand for the term deposit facility as evidenced by the consistent strong bid relative to offer.”

“We’re feeling out the tenor preference and we will adjust supply accordingly in future auctions to meet our interest rate corridor objectives,” he said, referring to the central bank’s method for managing the range of interest rates in the local financial market.

From a weekly tender of almost P200 billion divided between 7- and 28-day deposits, the central bank progressively reduced this amount for the better part of last year as the problem of potentially inflation-causing idle cash in the local economy abated. The reductions culminated in last December’s decision to stop tenders for the longer-dated facility altogether, leaving only the 7-day window.

Bankers complained, however, that stopping the weekly tenders deprived the financial system of one of the most reliable benchmarks for pricing their short-term loans.

Financial market players yesterday welcomed the central bank’s move to reinstate the 28-day facility even with just a token amount of P20 billion for its first tender on Feb. 7, 2018.