MANILA, Philippines — The Bangko Sentral ng PIlipinas (BSP) has slashed the volume of the term deposit auction facility (TDF) for the second straight week amid the tighter monetary condition.
The central bank auction committee further slashed the size of term deposits to P60 billion from the reduced volume of P70 billion last Wednesday.
The BSP cut by half the volume of 14-day term deposits to be sold next week to P10 billion instead of P20 billion, while the size of the seven- and 28-day tenors were maintained at P40 billion and P10 billion, respectively.
BSP Deputy governor Diwa Guinigundo said the central bank decided o reduce the volume offering as latest liquidity forecasts indicate lower excess liquidity in the system.
“More funds are going into loans, investments, and dollar purchases. This is auspicious because the banks are doing a good job in financial intermediation especially in the face of government infrastructure projects aimed at addressing our large infrastructure gap and enhance our productive capacity,” he said.
The TDF is a key liquidity absorption tool by the BSP tasked to withdraw a large part of the structural liquidity from the financial system to bring market rates closer to the central bank’s policy rate.
The seven- and 14 day term deposits continued to fetch record high rates while the yield of the 28-day eased last Wednesday as banks continued to recalibrate their bids to factor in more rate hikes as the BSP’s Monetary Board has raised interest rates by 100 basis points to curb rising inflationary pressures.
“Open market operations is precisely aimed at finetuning the level of domestic liquidity,” Guinigundo said.
Last week, BSP Governor Nestor Espenilla Jr. said there is reduced appetite for term deposits due to tighter conditions in the financial system.
“Based on BSP liquidity forecast, TDF demand would be reduced because of tighter peso liquidity due to BSP foreign exchange market operations,” Espenilla said.
The BSP has been active in the foreign exchange market, smoothening the volatility of the peso amid the expected rate hike by the US Federal Reserve, emerging market contagion as well as domestic market concerns including the runaway inflation and weak peso.