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TDF auction oversubscribed

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By Lee C. Chipongian

The central bank’s term deposit facility (TDF) was oversubscribed during yesterday’s auction with P65.53-billion bids against offer of P50 billion.

MB file photo.

MB file photo.

The Bangko Sentral ng Pilipinas (BSP) brought back the 28-day tenor after removing it from the March 13 auction, which only had the 7-day and 14-day TDF.

The weighted average accepted yields closed mixed ahead of the BSP Monetary Board policy meeting today (Thursday), which was BSP Governor Benjamin E. Diokno’s first policy meeting as new chairman of the Monetary Board.

The 7-day TDF showed the larger drop in rates at 4.9803 percent versus the previous week’s 5.0214 percent.

The 7-day also had lower bids this week of P27.25 billion compared to P34.30 billion last March 13. The offer remains at P20 billion.

The 14-day tenor, in the meantime, had tenders amounting to P22.20 billion, also lower compared to P32.05 billion in the previous auction but higher than offer of P20 billion. The average rate rose to 5.1079 percent from 5.0975 percent.

The 28-day TDF, which was absent last March 13, was oversubscribed at P16.08 billion against offer of P10 billion. Its rate was at 5.0987 percent.

BSP Deputy Governor Diwa C. Guinigundo, currently in Beijing for a scheduled Philippine investor relations’ roadshow, said that the financial system remains liquid.

Last week, with just two tenors on the block, the TDF was oversubscribed at P66.35 billion, more than this week’s total tenders. “Banks have enough surplus funds to place with the BSP,” he said.

The BSP and banks are closely watching liquidity conditions, and the market is expecting the central bank to reduce reserve requirement ratio or RRR soon.
The BSP no longer considers the RRR as a policy tool or key to liquidity management, rather they view it now as operational adjustments.

An anticipated RRR reduction could happen off-cycle, or after Thursday’s Monetary Board policy meeting.

Guinigundo has repeatedly said that adjusting the RRR level has always been on the table and it will only be a matter of timing. Too much money supply could result to financial stability risks however. “There could be some impact on the repricing of risks,” he said.

The late BSP Governor Nestor A. Espenilla Jr. has communicated to the market two years ago that the BSP intends to bring down the RRR level – currently at 18 percent – to single-digit ratio by 2023.

In 2018, the BSP reduced RRR by 200 basis points which released P180 billion to P190 billion into the financial system.

Espenilla has said at the time that since the BSP’s open market operations’ liquidity-absorbing functions have limitations, a 200 bps cut is a prudent measure.

The TDF, part of the interest rate corridor which the BSP adopted in 2016, allowed them room to reduce the RRR as an operational adjustment and to ensure that they have enough market-based tools to neutralize its impact.

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