Tenders at the term deposit auction facility (TDF) amounted to P128.83 billion against the issue size of P100 billion as the seven, 14, and 28-day tenors were oversubscribed.
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Term deposit yields mixed as investors swarm auction
Lawrence Agcaoili (The Philippine Star) - July 19, 2018 - 12:00am

MANILA, Philippines — Banks continue to invest their excess liquidity in the financial system as term deposits fetched mixed yields at yesterday’s auction, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Tenders at the term deposit auction facility (TDF) amounted to P128.83 billion against the issue size of P100 billion as the seven, 14, and 28-day tenors were oversubscribed.

Bids for the P40 billion seven-day term deposits reached P47.37 billion, while tenders for the P40 billion 14-day tenor amounted to P57.48 billion.

Likewise, bids for the 28-day tenor reached P23.98 billion against the issue size of P20 billion.

The TDF was launched in June 2016 as part of the shift to the interest rate corridor (IRC) framework to guide short-term market rates toward the BSP policy interest rate.

BSP Governor Nestor Espenilla Jr. said the key liquidity absorption facility has been successful in absorbing the fresh funds that were released into the system with the reduction of the reserve requirement ratio (RRR) by 200 basis points.

The Monetary Board has reduced the RRR twice this year to 18 percent from 20 percent, releasing around P190 billion in additional liquidity into the financial system to support the country’s growing economy.

The first reduction that took effect last March 2 injected P90 billion in fresh funds into the system followed by another 100 basis point cut last June 1 that injected around P100 billion in additional liquidity into the economy.

Espenilla said the cuts are not without compensating action as the IRC framework is in place to absorb excess liquidity and is intended to be policy neutral operational adjustment.

“In fact, the liquidity releasing impact of the two previous RRR cuts that we’ve done so far this year, is actually less than the liquidity draining impact of open market operations and our significant foreign exchange operations to manage excessive peso volatility in the face of external uncertainties,” he said.

According to Espenilla, the actions resulted in tighter financial conditions as evidenced by rising market interest rates.

The seven-day term deposits fetched a higher yield of 3.7586 percent from 3.7537 percent last week, while the rate of the 28-day tenor rose to 3.9416 percent from 3.9346 percent.

On the other hand, the yield of the 14-day tenor eased anew to 3.9220 percent yesterday from last week’s 3.9258 percent.

BANGKO SENTRAL NG PILIPINAS TERM DEPOSIT AUCTION FACILITY
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