By Lee C. Chipongian
The average rates of all three tenors of the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) inched up higher this week while demand slowed compared to the previous auction.
The TDF volume which remained at P80 billion, attracted lower tenders of P66.23 billion from July 17’s P88.91 billion.
The 7-day tenor, offered at P30 billion, had bids of P27.75 billion from P37.49 billion last week. Yields were up slightly at 4.5679 percent from 4.5640 percent.
The 14-day TDF auctioned at P30 billion, had about half of the previous week’s P30.89-billion tenders at only P16.78 billion. Its average rate increased to 4.6277 percent from 4.6148 percent.
The longest-dated TDF, the 28-day was oversubscribed at P21.70 billion versus offer of P20 billion. Yields were up a bit at 4.6495 percent from 4.6492 percent last July 17.
BSP Governor Benjamin E. Diokno said after reducing the policy rate and the reserve requirement ratio (RRR) in May, some time is needed to assess its impact on the market and economy. Some of these liquidity freed from RRR cuts will be siphoned off by the TDF, while the rest will be lent out to individuals and corporates by banks or used to purchase foreign exchange.
Liquidity resulting from the lower RRR which will be reduced by a total 200 basis points by next week will be carefully monitored, according to Diokno, but said that at the moment, liquidity and credit conditions complement each other.
He noted that the peso depreciation to the P51 level has “offset the faster liquidity growth resulting from the downward adjustments in the policy rate and reserve requirements” which started in May.
Diokno also noted that there’s continued increase in bank lending while the growth in domestic liquidity or M3 has slowed down to 6.4 percent year-on-year in May from seven percent in April.
He added that M3-to-GDP ratios show that liquidity conditions remain supportive of growth at 64.2 percent for the first quarter 2019. The real GDP growth rate with M3-to-GDP ratio also shows “ample liquidity to accommodate the growth of economic activity, even if M3 growth is more modest today,” he told a forum on Tuesday.