28-day term deposit auction resumes

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is set to resume the offering of 28-day term deposits next week as the yield of the seven-day term deposits continued to ease amid the return of significant liquidity in the market.

The BSP auction committee decided to offer the 28-day term deposits anew at the term deposit auction facility on Feb. 7 with an initial volume of P20 billion. It last offered the longer-dated term deposits worth P40 billion last Dec. 13.

The central bank temporarily stopped the auction of the 28-day term deposits last Dec. 20 due to tight market conditions after the Bureau of Treasury raised P255 billion from the issuance of retail treasury bonds while banks needed more cash for the Christmas holidays.

BSP Deputy Governor Diwa Guinigundo said the central bank continues to see the return of liquidity to the banks after the holiday season and the impact of the sustained release of public funds for infrastructure and other social projects.

“The BSP has more liquidity to bring back to its term deposit auction facility on top of the overnight deposit facility and the reverse repurchase facility and in the process ensure appropriate level of domestic liquidity and price stability,” he said.

There would be a gradual adjustment in the volume of the TDF as market players continue to express interest in the 28-day term deposits, according to Guinigundo.

With the resumption, the BSP is scheduled to bid out P60 billion worth of term deposits next week including P40 billion worth of seven-day term deposits.

The yield of seven-day term deposits eased for the seventh straight week as banks continued to gobble up the shorter-dated term deposits.

The seven-day term deposits fetched a lower rate of 2.7785 percent from 2.9256 percent last week as accepted yield ranged from 2.7 to 2.85 percent.

Bids amounted to P116.63 billion, almost three times the issue size of P40 billion.

BSP Governor Nestor Espenilla Jr. said there is strong overall demand for term deposits as evidenced by the consistent strong bid relative to offer.

“We’re feeling out the tenor preference and we will adjust supply accordingly in future auctions to meet our interest rate corridor objectives,” he said.

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 as part of the shift to the IRC framework to bring market rates closer to the BSP policy rate.