Term deposit rate eases as buyers return

MANILA, Philippines — The yield of the seven-day term deposits eased anew as liquidity continues to return to the financial system after the Christmas season.

Banks swarmed the term deposit auction facility (TDF) yesterday as bids for the short-dated term deposits amounted to P127.12 billion, more than three times the offer size of P40 billion.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said banks are now awash with liquidity.

“As we indicated two weeks ago, significant liquidity is coming back to the banks. We also see continued disbursement by the government to fund its normal current operations as well as capital spending especially for infra projects,” he said.

Guinigundo said there is sustained high demand for loans, foreign exchange for imports, outward investments and debt amortization.

“We are therefore witnessing the gradual normalization of liquidity conditions. The BSP does not want to interfere with this process by bringing back liquidity into its deposit facilities at this transition stage,” he said.

The BSP auction committee has not offered 28-day term deposits for the past four weeks due to tight market conditions amid the high demand for cash during the holiday season.

“All of these developments have been considered in our liquidity forecasts and choice of instrument in managing liquidity. As to our plans for the 28-day term deposits, this is something that is part of our monitoring. Timing is essential here,” Guinigundo said.

The BSP will offer P40 billion worth of seven-day term deposits next Wednesday.

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

The yield of the seven-day term deposits slipped further to 3.2223 percent from 3.3654 percent last week with accepted yields ranging from 3.15 to 3.25 percent.

Liquidity in the financial system rose 14.8 percent to P10.26 trillion in end-October from P8.94 trillion in end-October last year, while credit growth grew slower at 19.9 percent to P6.81 trillion from P5.68 trillion as banks continued to lend more to the productive sector.