Fund inflow continues as banks swarm BSP auction

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said yesterday foreign investors looking for attractive investment options are coming into the country, beefing up the financial sector’s ample liquidity as banks and trust entities again swarmed the auction of term deposits.

Tenders for the seven- and 28-day term deposits hit P223 billion or more than four times the issue size of P50 billion. The BSP made a full award of P10 billion for the seven-day term deposits and P40 billion for the 28-day term deposits.

Both tenors fetched 2.5 percent. Bids for the seven-day term deposits amounted to P60.25 billion, while those for the 28-day term deposits reached P162.24 billion.

BSP Deputy Governor Diwa Guinigundo said there is ample supply of liquidity in the financial system. “Foreign funds are coming in and that adds to domestic money supply. Domestic credits continue to expand,” Guinigundo said.

Guinigundo said there is enough funds in the financial system to support economic growth as well as higher spending for infrastructure projects.

The new administration has raised the country’s budget deficit ceiling to three percent of gross domestic product (GDP) instead of two percent of GDP as it is looking at raising infrastructure spending to about five percent of GDP.

“That also means the government can truly leverage on excess liquidity and fund infra projects with local funds. With inflation low and stable, interest rates remain favorable so that investments and public spending can be undertaken at manageable cost,” he said.

BSP Governor Amando Tetangco Jr. said the 13.5 percent liquidity expansion underscored a healthy growth path.

“This indicates we are moving toward more sustainable auction levels. That said, there is still room for further refinement to achieve a smooth convergence between supply and demand in the market,” he said.

The inter-agency Development Budget Coordination Committee (DBCC) earlier slashed the country’s GDP growth target to a range of six to seven percent instead of 6.8 to 7.8 percent this year due to weak public spending, the diminishing effects of election spending, and the impact of El Niño on the agriculture sector.

Since June 8, the BSP has been selling P30 billion through the term deposit facility (TDF) every Wednesday consisting of P10 billion worth of seven-day term deposits and P20 billion worth of 28-day term deposits.

The central bank raised the volume to P50 billion consisting of P10 billion worth of seven-day term deposits and P40 billion starting July 7. The same amount would be auctioned on July 13 and 20.

Earlier, Guinigundo said the BSP is not in a rush to increase the volume of the TDF as the liquidity in the financial system is sufficient to fund economic activity.

Term deposits are common tools used by central banks for liquidity management. The facility allows central banks to withdraw bulk of excess liquidity from the financial system and is suitable for shorter maturities due to their non-tradable nature.