BSP eyes add’l TDF tenors if need arises
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is ready to introduce additional tenors in the term deposit auction facility (TDF) if the need arises next year as part of the operational adjustments in the interest rate corridor (IRC) framework.
BSP Deputy Governor Diwa Guinigundo said the central bank would have to consult the market if there is a need for additional tenors for the once a week auction of term deposits.
“That’s on the table, in case we need to introduce additional tenors. Probably that should be part of the operational adjustment in the interest rate corridor system maybe next year,” he said.
The BSP currently bids out seven- and 28-day term deposits since the TDF was launched in June last year as part of the shift to the IRC system.
The possibility of offering longer tenors would depend on the liquidity needs and preferences of the market, according to Guinigundo.
“First, we talk to the market, we find out whether there is additional need for additional tenors or will it be useful if we offer additional maturities for them. We need to validate this with the market,” Guinigundo said.
The TDF is a key liquidity absorption facility, commonly used by the central bank for liquidity management.
Due to the BSP’s inability to issue its own debt instruments, the TDF 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.
The BSP has slashed the volume of the term deposit auction facility for the fourth time in as many months amid the thinning excess liquidity in the financial system.
The BSP’s auction committee has reduced the issue size to P80 billion starting Wednesday from the previous volume of P130 billion. This was the biggest reduction in volume implemented by the central bank since the TDF was launched.
The IRC is a system for guiding short-term market interest rates toward the central bank target or policy rate. It is intended to help ensure that money market interest rates move within a reasonably close range around the BSP’s policy rate.
The close relationship between the policy rate and market interest rates provides the fundamental basis for monetary policy transmission.
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