Term deposits undersubscribed amid RRR cuts

MANILA, Philippines — The auction for the term deposit facility (TDF) was undersubscribed yesterday despite the release of additional liquidity into the financial system stemming from the reduction of bank reserves kept with the Bangko Sentral ng Pilipinas (BSP).

Bids for the three tenors of the liquidity absorption facility only reached P31.6 billion out of the P40 billion offering.

Tenders for the P20-billion seven-day term deposits reached P18.89 billion, while bids for the 14-day tenor amounted to P6.66 billion versus the P10 billion volume.

Likewise, tenders for the P10-billion 28-day tenor only reached P6.05 billion.

BSP Deputy Governor Diwa Guinigundo said banks are deploying excess funds for various purposes including loans even with the release of additional liquidity from the reduction of the reserve requirement ratio (RRR).

“The banks could have deployed them to various purposes other than placing them with BSP again in anticipation of more funds to be released via reduction in RRR,” Guinigundo earlier said in a text message.

About P106 billion worth of liquidity was released into the system last May 31 as the 100-basis point reduction in the RRR for big, mid-sized and small banks took effect.

The RRR for both universal and commercial as well as thrift banks would be reduced further by 50 basis points on June 28 and another 50 basis points on July 26, releasing another P104 billion into the financial system.

The term deposits yesterday fetched higher rates across the board.

Rizal Commercial Banking Corp. economist Michael Ricafort said the RRR cut could release additional funds to boost the gross domestic product (GDP) growth that eased to a four-year low of 5.6 percent in the first quarter from 6.3 percent in the fourth quarter of 2018.

“This is positive for the local economy and financial markets due to greater lending and investment activities by banks may spur greater economic activities and faster economic or GDP growth,” Ricafort said.

The yield of the seven-day tenor climbed 5.03 basis points to 4.6669 percent yesterday from last week’s 4.6187 percent, while the 28-day term deposits fetched 4.6048 percent or 1.03 basis points higher than the previous auction’s 4.5910 percent.

Likewise, the 28-day tenor fetched 4.6603 percent yesterday or 6.29 basis points higher than last week’s 4.5974 percent.

Inflation, on the rise in consumer prices, accelerated to 3.2 percent in May from a 16-month low of three percent in April due to higher food and utility prices, but averaged 3.6 percent in the first five months or still within the BSP’s two to four percent target.

The BSP’s Monetary Board slashed interest rates by 25 basis points last May 9 as inflation eased for six straight months after peaking at 6.7 percent in September and October last year due to elevated oil and food prices as well as the weak peso.

BSP Governor Benjamin Diokno said inflation is still seen averaging with in the three percent range and well within the central bank’s two to four percent target in 2019 and 2020 despite the uptick in May.