MANILA, Philippines – Longer-dated term deposits fetched higher yields as the Bangko Sentral ng Pilipinas (BSP) continue to bring market rates closer to policy rates under the interest rate corridor (IRC) system.
Bids for the seven-day term deposits reached P44.7 billion, while tenders for the 28-day term deposits amounted to P191.66 billion yesterday. The BSP made a full award of P10 billion for the seven-day term deposits and P80 billion for the 28-day term deposits.
BSP Governor Amando Tetangco Jr. said the bid to cover ratio of the 28-day term deposits has declined gradually to 2.396 yesterday from 5.86 when the term deposit facility (TDF) was launched last June 8 as part of the shift to the IRC framework.
“This reflects greater market familiarity with the operational aspect of IRC,” he said.
The seven-day term deposits fetched a 2.5 percent yield while the longer 28-day term deposits rose to 2.512 percent from last week’s 2.501 percent as accepted yield, ranged between 2.5 and 2.525 percent.
“Under the IRC, the BSP in general would be accepting all the bids until we have filled the offered volume for the TDF. We’ve calibrated the auction sizes so that market rate movements that will close the gap with our policy rate would also be gradual,” Tetangco said.
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.
The BSP has raised the volume of the TDF thrice since the first auction was held last June 8 with an original volume of P30 billion. It was increased to P50 billion in July, and then to P70 billion in August, and further up to P90 billion starting Aug. 31 consisting of P10 billion worth of seven-day term deposits and P80 billion worth of 28-day term deposits.
“Moreover it also shows the continued absorption of liquidity via the TDF. We will still continue to assess market conditions to see what further refinements to the auction size for both tenors would be needed going forward,” Tetangco said.
For his part, BSP Deputy Governor Diwa Guinigundo said market rates are expected to move closer to policy rates more decisively over the next three months as funds continued to migrate to the TDF from the overnight deposit facility (ODF).
“The increase in the yield is in line with our expectation that as we mop up more liquidity and migrate funds from ODF to TDF, market rates will be guided towards the BSP policy rate and enhance the effectiveness of monetary policy,” he said.