Banks swamp BSP antiinflation auction

Financial institutions swamped the central bank auction for its liquidity mop up facility offering to deposit substantially more cash than what the regulator was willing to accept, but whose yields continued to rise anyway despite the oversupply in cash.

Bankers said the across-the-board increase in yields of the Bangko Sentral ng Pilipinas’ weekly term deposit facility auction was prompted by expectations that inflation would continue rising over the near term.

Banks submitted a total of P124 billion in bids for the combined P100 billion that the central bank put on offer for all three tenors of its antiinflation instruments—the first time in several weeks that the entire auction was oversubscribed.

In Wednesday’s auction, the seven-day instrument attracted P58.5 billion in bids for the P40 billion that the BSP had offered. The regulator accepted a total of P40 billion, with the yield rising to 3.7779 percent from last week’s 3.7523 percent.

The 14-day instrument drew P43.3 billion in bids from banks for the P40 billion that the BSP offered, reversing last week’s undersubscription. The central bank accepted P40 billion in bids, with the yield rising to 3.9309 percent from last Wednesday’s 3.8689 percent.

Finally, the 28-day facility attracted P22.2 billion worth of bids from banks, higher than the P20 billion that the central bank was willing to accept. In the end, the regulator accepted P20 billion and the yield rose to 3.9442 percent from last week’s 3.8471 percent.

The Bangko Sentral ng Pilipinas 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.

BSP Governor Nestor Espenilla Jr. said monetary authorities would continue with its policy of letting the market determine the yields on the term deposit facility. He said the steady upward trend in the interest rates for the three tenors helped rein in inflation despite the central bank’s perceived delay in raising its own key rates in response to rising consumer prices.