November 21, 2017 | MANILA, PHILIPPINES

Term deposit offer sees strong demand

BANKS and trust firms continued to crowd the central bank’s term deposit facility (TDF), bringing the average yields lower for the second straight week on the back of excess money supply in the financial system.

Total bids for the TDF auction reached P255.115 billion on Wednesday, well above the P180-billion offered by the Bangko Sentral ng Pilipinas (BSP).

The seven-day tenor saw total tenders at P51.07 billion, 1.7 times higher than the P30 billion auctioned by the central bank. Rates sought by bidders averaged at 3.0103%, dipping from last week’s 3.0219% and as firms sought for yields from a narrow range of 3-3.02%.

The 28-day term deposits also saw overwhelming bids amounting to P204.045 billion, breaching the BSP’s P150-billion offer. The average yield also went down to 3.4007% from 3.4106% previously, but still close to the 3.5% ceiling set under the interest rate corridor.

The TDF is the central bank’s main tool to arrest excess liquidity in the financial system, with the goal of bringing market rates closer to the BSP’s 3% benchmark rate while also spurring greater interbank lending.

BSP Governor Amando M. Tetangco, Jr. said the TDF results showed the continued preference for the shorter tenor, reflecting a cautious stance taken by market players in light of lingering uncertainties in the global market.

“The TDFs remained choice instruments as markets continue to favor the short end of the curve,” Mr. Tetangco said in a text message to reporters.

Market players have been on a wait-and-see mode in recent weeks amid concerns on developments in the US, largely driven by the expected “lift-off” in interest rates by the Federal Reserve and “protectionist” policies introduced by new President Donald J. Trump.

The central bank also decided to keep the weekly volume steady at P180 billion until the first week of March, with Mr. Tetangco saying that such a level is “still consistent with our liquidity forecast path.”

This would mark the fourth straight month when the weekly auction volume stood at P180 billion, which has been kept since Dec. 1, 2016.

Central bank officials have said that plan to cut the 20% reserve requirement imposed on big banks remains on the table, but has been held off as markets remain awash with liquidity.

BSP Deputy Governor Diwa C. Guinigundo previously said that the BSP can consider adjusting the reserve standard at a time of tighter liquidity conditions.

Once reduced, the reserve requirement will free up more funds for banks to lend out, which would effectively increase the money supply circulating in the economy.