Term deposit auction size cut to P50 billion

MANILA, Philippines — Banks continue to service huge demand for cash during the Christmas holiday, prompting the Bangko Sentral ng Pilipinas (BSP) to slash the volume of its term deposit auction facility (TDF) to P50 billion next Wednesday from P70 billion this week.

BSP Deputy Governor Diwa Guinigundo said banks are expecting more cash usage this Christmas holiday. “As such, they are willing to place their money with BSP to a limited extent across tenors,” Guinigundo said.

The liquidity absorption facility of the central bank was undersubscribed last Wednesday as total tenders for the P70-billion auction only reached P58.48 billion.

“The volume may be reduced based on our liquidity forecasts indicating the higher demand for cash and less propensity to deposit with BSP these days. This is just normal market outturn,” Guinigundo said.

The BSP auction committee reduced the volume of the seven-day term deposits to P30 billion instead of P40 billion, while the size of the 14-day tenor was slashed by half to P10 billion instead of P20 billion. The volume for the 28-day term deposits was retained at P10 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 towards he BSP policy interest rate. It also serves as a liquidity absorption facility of the central bank.

Yields of term deposits rose across the board to hit record high levels anew last Wednesday after the Monetary Board kept interest rates unchanged as inflation is seen easing back to the central bank’s two to four percent target earlier than expected next year.

The seven-day tenor fetched a record 5.1462 percent yesterday or 3.27 basis points higher than last week’s 5.1135 percent, while the yield of the 14-day term deposits rose 5.39 basis points to a new all-time high of 5.2188 percent from 5.1649 percent.

The 28-day term deposit rate inched up 1.4 basis points to a record 5.2092 percent from 5.1952 percent last week.

Inflation eased to a four-month low of six percent in November from a near-decade high of 6.7 percent in October, bringing the average to 5.2 percent from January to November and exceeding the BSP’s two to four percent target range.