By Lee C. Chipongian
The central bank redistributed its ₱90-billion term deposits facility (TDF) this week, resulting in lower bids and mixed yields.
Banks tendered ₱100.48 billion against offer of ₱90 billion which was lower than October 16’s ₱114.51 billion.
After two weeks of declining average rates, both the 14-day and 28-day TDF pushed rates up while bids were lower. The TDF uses a variable-rate, multiple-price tender in the weekly auction.
The 14-day tenor’s average rate was 4.2477 percent this week from the previous 4.2348 percent. Offered at ₱30 billion which was same as last week, tenders amounted to ₱30.24 billion, lower than October 16’s ₱35.52 billion.
The longer-dated tenor had a yield of 4.2480 percent, also more than last week’s 4.2227 percent. The 28-day had a higher offer of ₱40 billion from ₱30 billion previously, but bids totaled only ₱37.68 billion.
The 7-day TDF’s average rate, in the meantime, dropped lower to 4.2055 percent from 4.2264 percent last week. The BSP cut its volume to ₱20 billion from ₱30 billion. The tenor was the only offering that was oversubscribed at ₱32.56 billion.
Last September 26, the BSP’s Monetary Board cut interest rates by 25 basis points (bps) for the third time this year. This is after the inflation rate in September fell to 0.9 percent from 1.7 percent last August. For the first nine months, inflation averaged at 2.8 percent. The BSP currently has a 2019 inflation forecast of 2.5 percent.
BSP Governor Benjamin E. Diokno said he is comfortable at stopping at a cumulative 75 bps cut to the policy rates for 201, and that they could pause for now.
But, Diokno said they are not yet done with plans to further lower reserve requirement ratio (RRR) this year, even after deciding to reduce it by another 100 bps in the first week of November.
While some banks choose to park their funds in the BSP via the TDF to earn interests at very low risks, Diokno expect lending growth to continue with the RRR reductions. A 100 bps cut to RRR is equivalent to an additional liquidity of ₱95 billion at least.