BSP: Credit level safe as term deposit demand declines

MANILA, Philippines -- Less funds went to the Bangko Sentral ng Pilipinas' (BSP) term deposit facility (TDF) on Wednesday, prompting its chief to say there is no need to soak out liquidity in the financial system for now.

A total of P211.25 billion in combined offers were made to seven- and 28-day TDFs, down 8.8 percent from the previous week's tenders.

Broken down, more credit was channeled to the 28-day facility at P180.3 billion. This, however, was a tenth below the P200.3 billion recorded last Oct. 19.

One-week settlements also went down to P30.95 billion.

"Liquidity remains non-inflationary," BSP Governor Amando Tetangco Jr. told reporters in a text message.

"The current conditions, including today's auction results, still do not warrant adjusting the RRR (reserve requirement ratio)," he said. 

Last June 8, TDF was opened as an avenue for investors to park their funds and gain interest, while BSP uses it to control excessive liquidity that can push inflation.

Inflation, as measured by consumer price index, accelerated to an 18-month high of 2.3 percent in September and the central bank is expecting the uptrend to continue this month.

However, Tetangco, in a separate text message, said the uptick could be brought more by rising oil prices and typhoon damage to crops that could hurt food supply.

BSP has forecast inflation to settle between 1.9 and 2.7 percent for October.

As far as credit is concerned, Tetangco said the central bank would want more funds to divert to TDF before it tightens bank reserves to absorb more liquidity.

"We would like to see more migration to TDF before we consider adjustments in the RRR," he said.

BSP so far has kept steady its policy rate and RRR this year with only two policy-setting meetings left next month and in December. 

It has relied mostly on the TDF to manage money supply, raising its offer four times from just P30 billion since June. A fifth adjustment to P130 billion will be effective next week.

At Wednesday's auction, full award of TDF was made despite higher rates across-the-board.  

Rates for seven-day TDFs inched up to 2.5109 percent from previous week's 2.502 percent, while those for 28-day facility rose a higher 7.2 basis points to 2.6337 percent.

"We do not have a preset level of target auction average rates to trigger action (in RRR)," Tetangco said.