Term deposit volume cut to P60 billion

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has reduced anew the volume of its term deposit auction facility (TDF) due to the expected higher  demand for cash   during the barangay and Sangguniang Kabataan elections on May 14.

BSP Deputy Governor Diwa Guinigundo said the auction committee has lowered the volume of the seven, 14, and 28-day term deposits  to P60 billion from P90 billion last Wednesday.

 “Because of the May 14 elections, there may be a higher demand for liquidity on the part of the clients of the banks, so their propensity to invest in TDF would definitely be much lower,” he said.

The BSP has lowered the size of the seven-day tenor to P30 billion from P40 billion, the 14-day term deposits to P20 billion from P30 billion, and the 28-day tenor to P10 billion from P20 billion.

The auction committee earlier reduced the TDF volume to P90 billion last March 28 from P110 billion due to the Lenten season. The volume was raised back to P110 billion last April 4, but was again slashed to P90 billion last April 25 due to the Labor Day holiday last May 1.

 “This is no different from our decision last week in line not only with the Holy Week, but also the May 1 Labor Day holidays,” Guinigundo said.

Last Wednesday, term deposit rates rose across the board as banks swarmed the term deposit auction facility of the BSP amid the rising expectation of a rate hike next week.

The seven-day term deposits fetched a higher rate 3.4434 percent from 3.3967 percent last week, while the yield of the 14-day term tenor rose to 3.4704 percent from 3.4370 percent. Likewise, the 28-day term deposits commanded a higher rate of 3.465 percent from 3.4097 percent.

The TDF is a key liquidity absorption facility used by central banks for liquidity management. The facility withdraws a large part of the structural liquidity from the local financial system as part of the shift to the interest rate corridor (IRC) framework in June 2016 to bring market rates closer to the BSP policy rate.