Term deposits oversubscribed

MANILA, Philippines — Intitutional investors flocked the auction for the seven-day term deposits yesterday, prompting the Bangko Sentral ng Pilipinas (BSP) to consider restoring the 28-day paper as soon as the liquidity level in the financial system normalizes after the Christmas season.

Bids for the shorter-dated term deposits amounted to P95.55 billion, more than double the issue size of P40 billion. This was the third straight week that the BSP auction committee did not offer 28-day term deposits.

The central bank has reduced the volume of the term deposit facility (TDF) five times since it was launched in June 2016 as part of the shift to the interest rate corridor (IRC) framework.

The BSP first reduced the volume to P150 billion from P180 billion last September, to P140 billion in October, to P130 billion in November, to P80 billion in Dec. 6 and to  P40 billion last Dec. 20 as it dropped the 28-day term deposits in June last year.

The BSP auction committee decided to retain the volume of the TDF at P40 billion consisting only of seven-day term deposits next Wednesday.

The yield of the seven-day term deposits further slipped to 3.3654 percent yesterday from 3.3995 percent last week, with accepted yields ranging from 3.25 to 3.4 percent.

BSP Deputy Governor Diwa Guinigundo said liquidity continues to go back to the banks after the holiday season.

“After the holidays, liquidity goes back to the banks. So they are now more liquid and they need to place their money very quickly. That would explain the tighter competition and lower rates,” he said.

The BSP has been mopping up excess liquidity in the financial system as banks continued to lend more, buy foreign exchange for imports, debt servicing and foreign investments.

This prompted the central bank’s auction committee to temporarily scrap the 28-day term deposits in the weekly TDF auction.

“We shall restore the 28 days TDF in due time as liquidity normalizes after the holidays and the banks have more regular view of their investment horizon,” Guinigundo added.

He earlier said the BSP is consulting with banks on the possible introduction of a third tenor that could probably be a cross between the seven- and 28-day term deposits.

The TDF is a key liquidity absorption facility used by central banks for liquidity management. It is tasked to withdraw a large part of the structural liquidity from the financial system to bring market rates closer to the BSP policy rate.

Liquidity in the financial system rose 14.8 percent to P10.26 trillion in end October last year from P8.94 trillion in end October previous year while credit growth eased to19.9 percent to P6.81 trillion from P5.68 trillion as banks continued to lend more to the productive sectors.