Longer term deposits oversubscribed, rates mixed

MANILA, Philippines — Banks swarmed yesterday’s auction as yields of term deposits were mixed with the improving liquidity in the financial system, the Bangko Sentral ng Pilipinas (BSP) said.

The P110 billion term deposit auction facility (TDF) was oversubscribed anew as bids amounted to P133.02 billion.

As expected, bids for the P50 billion seven-day term deposit offering only amounted to P47.1 billion as banks hold more cash as individual taxpayers are required to file their annual income tax returns for 2017 and pay the corresponding taxes on April 16.

On the other hand, both the 14- and 28-day tenors were oversubscribed. Tenders for the 14-day term deposits amounted to P55.8 billion versus the offer size of P40 billion, while bids for the P20 billion 28-day tenor reached P30.12 billion.

The seven-day term deposits fetched a higher rate of 3.3018 percent yesterday from last week’s 3.2657 percent, while the yield of the 14-day tenor rose to 3.4053 percent from 3.3575 percent.

On the other hand, the 28-day term deposits fetched a lower rate of 3.4192 percent from 3.4229 percent.

About P90 billion worth of additional liquidity as released into the financial system early this month after the BSP decided to finally reduce the ultra high level of deposits banks are required to keep with the central bank to 19 percent from 20 percent.

The reduction in the reserve requirement ratio (RRR) took effect March 2, marking the beginning of the gradual lowering.

The additional money supply released into the system was easily absorbed by BSP facilities led by the TDF.

BSP Governor Nestor Espenilla Jr., who last year voiced his intention to bring down the RRR level to single digit, said central bank facilities-including the TDF and the overnight deposit facility (ODF) – have been successful in managing liquidity in the financial system.

Espenilla said authorities are carefully evaluating the timing of the reduction of the level of deposits banks are required to keep with the BSP to make it at par with the rates of other member countries of the Association of Southeast Asian Nations (ASEAN).

“It is an aspiration as part of a manifestation of a reformed financial system. We want to see a reserve requirement regime that looks closely more alike with that of ASEAN,” he said.

The TDF is a key liquidity absorption facility used by central banks for liquidity management. It is tasked to withdraw a large part of the structural liquidity from the financial system as part of the shift to the interest rate corridor framework in June 2016 to bring market rates closer to the BSP policy rate.