BSP ponders further TDF hike

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is reviewing if there is a need to further raise the volume of the term deposit facility (TDF) after being undersubscribed for the first time since it was launched in June.

BSP Governor Amando Tetangco Jr. said monetary authorities would monitor watch the level of liquidity in the financial system before deciding whether or not it would further raise the issue size of the weekly auction for term deposits.

The central bank has raised the volume of the TDF six times since it was introduced last June 8 with an original volume of P30 billion as part of the interest rate corridor (IRC) framework.

“Well, we’re keeping it at P180 billion for now. And we’ll see later if there’s need to adjust depending on the liquidity in the system,” he said.

The TDF consisting of seven- and 28-day term deposits as well as the overnight deposit facility (formerly the special deposit account) are being used as tools to mop up excess liquidity in the financial system. The IRC aims to bring market rates closer to the policy rates.

Tetangco traced the lack of interest for term deposits during the last auction to seasonality as well as the gradual reduction in the access of trust entities in the TDF.

 “Right now, because it’s Christmas season, banks would want to have sufficient liquidity buffer to address sudden demand from their clients, or they can respond to that demand. I think that’s the main reason. Plus the fact that the trust departments are moving out,” he said.

The BSP has ordered that all ODF and TDF placements of trusteed accounts and Unit Investment Trust Funds (UITFs) should be reduced to 50 percent by Dec. 31 this year and to 30 percent by March 31 next year on a per account basis for trusteed accounts and a per fund basis for UlTFs.

Furthermore, any remaining ODF and TDF placements should be terminated by June 30, 2017.

Term deposits continued to fetch higher yields due to the uncertainties brought about by the impending interest rate hike in the US next month as well as the shocking victory of Republican Donald Trump.

Last Thursday, the six-day term deposits fetched 2.6059 percent from last week’s 2.5249 percent as accepted yield ranged between 2.5 and 2.95 percent while the yield of the 27-day term deposits soared to 2.9557 percent from 2.8023 percent as accepted yield ranged from 2.75 to 3.25 percent.