BSP sees sustained demand for term deposits

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) said it expects sustained strong demand from investors for the term deposit facility (TDF) amid the robust liquidity in the country’s financial system.

BSP Governor Amando Tetangco Jr. said the weekly auction of seven- and 28-day term deposits through the TDF would remain oversubscribed due to ample liquidity.

Tetangco also cited the delay in the normalization of interest rates by the US Federal Reserve.

Yesterday’s auction remained oversubscribed as tenders for the seven-day term deposits reached P54.07 billion or 5.4 times the issue size of P10 billion while offers for the 28-day term deposits amounted to P131.08 billion or 3.27 times the offer size of P40 billion.

Both tenors fetched a rate of 2.50 percent. The TDF has been oversubscribed since the first auction last June 8 as part of the shift to the interest rate corridor (IRC) framework.

“This is not unexpected. We will continue to see such oversubscription, with ample liquidity and as the prospect of a Fed hike in near term remains slim or uncertain,” Tetangco said.

Last week, the central bank decided to raise the volume being offered at the TDF to P70 billion starting August. The facility would comprise P10 billion worth of seven-day term deposits and P60 billion worth of 28-day term deposits.

This is the third time the BSP has raised the volume since the IRC system was introduced last June 3. The volume of the weekly auction was originally pegged at P30 billion (P10 billion for seven days and P20 billion for 28 days) but was raised to P50 billion (P10 billion for seven days and P40 billion for 28 days) for the month of July.

“As I’ve said before we will continue to make refinements to the auction sizes as monetary conditions warrant,” the BSP chief added.

Term deposits are common tools used by central banks for liquidity management. It allows central banks to withdraw bulk of excess liquidity from the financial system.

Latest data showed liquidity in the financial system expanded 13.5 percent to P8.66 trillion in May from P7.63 trillion a year ago.              

BSP deputy governor Diwa Guinigundo explained the continued oversubscription for both seven –and 28-day tenors indicated ample liquidity in the system on account of sustained inflows of foreign capital and foreign exchange receipts from remittances, tourism, and business process outsourcing (BPO).

He said close to P1 trillion worth of funds parked at the overnight deposit facility (formerly special deposit account facility) are slowly migrating to the TDF.

“It is also indicative of the gradual migration of funds from the overnight deposit facility to TDF that we expect would ultimately result in the stronger ability of the BSP to keep liquidity for longer periods for improved liquidity management,” he added.