BSP mulls new tenor for term deposits

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is studying the possibility of introducing a third tenor for the weekly term deposit auction facility (TDF) used to mop up excess liquidity in the financial system.

BSP Deputy Governor Diwa Guinigundo said banks are pushing for an additional tenor longer that the seven-day but shorter than the 28-day term deposits being offered under the TDF every Wednesday.

“Based on our initial discussion with the banks, these are initial and preliminary discussions, they prefer a third tenor, probably a cross between the seven and 28 days. Whatever that is, it’s something subject to discussion between the BSP and the banks,” he said.

The BSP currently bids out seven- and 28-day term deposits since the TDF was launched as part of the shift to the interest rate corridor (IRC) system in June 2016.

The TDF is a key liquidity absorption facility, commonly used by central banks 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.

In 2016, the BSP auction committee raised the volume of the TDF six times from an introductory volume of P30 billion in June. It was first raised to P50 billion in July, P70 billion in August, P90 billion in September, P110 billion in October, P130 billion in November and finally to P180 billion in December

Last year, the committee decided to reduce the volume due to tight market conditions. The size was first reduced to P150 billion last September, to P140 billion in October, to P130 billion in November, to P80 billion on Dec. 6, and finally to P40 billion last Dec. 20.

The BSP has momentarily dropped the longer-dated tenor as it is currently offering P40 billion worth of seven-day term deposits.

Guinigundo attributed the tight market conditions to the recent retail Treasury bonds (RTB) issuance by the Bureau of the Treasury that successfully raised P255 billion.

He also cited the continued disbursements of loans by banks to the productive sector as well as the need for more funds during the Christmas season.

“That can explain why they are reluctant to put their money in longer maturity. That’s the reason why the BSP decided to zero out TDF for 28 days next week because we know that banks have alternative use for their money instead of just putting it there with the BSP,” he said.

Despite limiting the current tenor of the TDF to the shorter-dated seven days, Guinigundo said the BSP auction committee continues to consult with the banks on the introduction of an additional tenor.

“That does not prevent us from considering other tenors,” he said.

Latest data from the central bank showed liquidity in the financial system grew slower at 14 percent in November from 14.8 percent in October. The amount of money circulating in the system stood at P10.4 trillion in end-November.