Term deposit rates fall on excess liquidity

MANILA, Philippines — Term deposit rates fetched lower rates across the board Wednesday as liquidity arising from the reduction in the reserve requirement ratio (RRR) continues to pour into the financial system, according to the Bangko Sentral ng Pilipinas (BSP).

The yield of the seven-day tenor eased by 7.03 basis points to 4.5537 percent from last week’s 4.6240 percent, while the 14-day term deposits fetched a lower rate of 4.6129 percent or 1.05 basis points lower compared to 4.7002 percent.

Likewise, the rate for the 28-day tenor fell by 15.01 basis points to 4.6347 percent after the auction committee decided to resume the sale of the longer dated debt instrument.

The debt paper fetched 4.7848 percent when it was last auctioned on June 13.

Banks swarmed the term deposit auction facility (TDF) as bids reached P67.54 billion, more than triple the issue size of P30 billion.

Tenders for the seven-day debt paper reached P25.42 billion versus the issue size of P10 billion, while bids for the 14-day term deposits amounted to P22.09 billion or more than double the P10-billion volume.

Likewise, bids for the 28-day term deposits amounted to P20.03 billion or double the P10-billion issuance.

BSP Governor Benjamin Diokno said liquidity continues to flow into the financial system after the central bank decided to slash the level of deposits banks are required to keep with the central bank starting last May 31.

Diokno said the liquidity absorption facility is sometimes three times oversubscribed.

“Don’t worry too much. The economy is doing well,” he said.

The BSP slashed the RRR level for big and mid-sized banks by 200 basis points in three tranches. The RRR for universal, commercial, and thrift banks was reduced by 100 basis points last May 31, followed by another 50 basis points on June 28, and 50 basis points on July 26.

On the other hand, the regulator also reduced the RRR for small or rural and cooperative banks by 100 basis points effective last May 31.

 “Looking back I think it was really a smart move to pre-announce the reserve requirement so that the banking industry can prepare,” Diokno said.