Seven-day term deposits attract higher demand

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Bangko Sentral ng Pilipinas (BSP) — BW FILE PHOTO

By Melissa Luz T. Lopez,
Senior Reporter

LENDERS opted to place more funds under the central bank’s term deposit facility (TDF) this week, driving yields lower for week-long instruments.

Demand for the seven-day tenor rose to P59.808 billion on Wednesday, up from the P46.212 billion in tenders received the previous week. This also shot beyond the P40 billion which the Bangko Sentral ng Pilipinas (BSP) placed on the auction block.

The term deposits fetched an average interest rate of 3.3995%, lower than the 3.4004% posted during last week’s offering.

The central bank has kept the weekly term deposit auctions limited to the week-long instruments in light of a smaller surplus of cash held by financial players over the holiday season.

The 28-day tenor was last offered on Dec. 13, during which the P40-billion auction volume was met by just P33.005 billion in total demand.

The weekly term deposit auctions are currently the central bank’s primary tool to capture excess funds in the financial system by allowing banks to park the extra cash they hold under the window, in exchange for a small margin.

Through this, the BSP expects to usher market rates closer to the benchmark borrowing rate at 3%, coming from below the 2.5% floor of the interest rate corridor when the TDF auctions started in June 2016.

For next week, the central bank decided to keep the TDF offerings at P40 billion with a seven-day term, given indications that banks are choosing to hold on to more cash than usual given greater demand among depositors.

“This is the holiday season, so the banks have reserved some liquidity for any contingency,” BSP Deputy Governor Diwa C. Guinigundo said in a text message.

“Naturally, they would prefer to go very short term as the banks continue to service their clients’ needs for loans, investment and even FX (foreign exchange) for imports, debt payments and outward investments.”

The central bank official has said that the shorter tenor provides more “flexibility” for banks to manage their funds and service client demands over the Christmas season, when families withdraw more cash to spend for celebrations and gift-giving activities.

This is a more viable option for banks rather than lock in money under the facility for a month.