Term deposit auction still undersubscribed

MANILA, Philippines — The term deposit auction facility (TDF) remained undersubscribed yesterday despite the decision of the Bangko Sentral ng Pilipinas (BSP) to slash the volume amid the thinning excess liquidity in the financial system.

Tenders for the P80 billion offering only reached P74.11 billion. Bids for the seven-day term deposits amounted to P41.27 billion, slightly above the P40 billion issuance while tenders for the 28-day term deposits reached P32.84 billion, lower than the P40 billion volume.

The BSP auction committee offered a lower volume of P80 billion from the previous size of P130 billion yesterday. The issue size for the 28-day term deposits was slashed to P40 billion from P90 billion while the volume of the seven-day term deposits was retained at P40 billion.

It first reduced the volume to P150 billion from P180 billion in September, then  to P140 billion in October, and to P130 billion in November.

BSP Deputy Governor Diwa Guinigundo said some of the excess funds were invested in government securities particularly in retail treasury bonds (RTBs).

The national government raised P255.4 billion from the issuance of RTBs due 2022 with a coupon rate of 4.625 percent.

“TDF undersubscription derives from the large offering of RTBs by the Bureau of the Treasury amounting to P255 billion,” he said.

Aside from investments in government securities including RTBs, excess funds were deployed to lending and foreign exchange purchases for clients’ imports and outward investment requirements, Guinigundo said.

“But in the final analysis, all this means is there is lower excess liquidity which the BSP should mop up,” he added.

The yield for both tenders increased. The seven-day term deposits inched up to 3.4171 percent from last week’s 3.4005 percent while the longer-dated term deposits fetched a higher rate of 3.494 percent from 3.492 percent.

“The correct response is for the BSP to mop less and that is precisely expressed in our recent announcement of the reduction in our offerings,” he said.

Guinigundo said the TDF undersubscription with tight liquidity would not necessarily warrant a reduction in the reserve requirement ratio (RRR) for banks that is currently pegged at 20 percent.

“Why should we then start considering RRR drop when what is tight is just the excess liquidity,” he said.

Guinigundo said monetary measures including the RRR are adjusted based on the reading and assessment of price outlook, inflation expectations, liquidity conditions, and economic momentum.

The RRR is the percentage of bank deposits and deposit substitute liabilities that banks maintain or deposit with the central bank.

Adjusting policy settings such as the RRR of banks also reduces the intermediation costs while also controlling liquidity. A one percentage-point reduction or increase releases or siphons off P90 billion worth of liquidity into the financial system.