Bangko Sentral ng Pilipinas is likely to increase next month the amount of deposits offered in the weekly term deposit auction to be more effective in siphoning off excess liquidity in the financial system, ING Bank Manila senior economist Joey Cuyegkeng said Tuesday.
Bangko Sentral has been offering to banks and trust entities P10 billion worth of term deposits for the seven-day tenor and P20 billion for the 28-day tenor, or for a total of P30 billion weekly, since June 8 this year.
“[The] BSP may increase the term deposit auction amount for July at this week’s BSP-MB monetary policy meeting. The weekly BSP term deposit auctions have been oversubscribed by more than five times the offered amount of P30 billion per week,” Cuyegkeng said.
He said the weekly auctions over the past two weeks saw term deposit rates at 2.5 percent although Bangko Sentral’s expectation was that these rates should be between the overnight deposit rate of 2.5 percent and the overnight reverse repurchase (borrowing) rate of 3 percent.
“The announcement of a higher TDA amount is possible after this Thursday’s monetary policy meetings. Market has seen such oversubscription as an indication of systems liquidity,” Cuyegkeng said.
The first TDF auction on June 8 attracted much interest from banks and trust entities. The P10 billion offered under the 7-day tenor generated total bids of P82.438 billion, while the P20 billion auctioned under the 28-day tenor attracted total tenders of P117.271 billion. Both tenors fetched a 2.5-percent weighted average yield.
The second auction on June 15 was also highly oversubscribed. Total bids for the P10-billion offered for the week-long tenor reached P63.937 billion, or more than six times oversubscribed. Total tenders for the P20 billion offered for the month-long tenor hit P92.847 billion, or more than four times oversubscribed. Both tenors fetched a weighted average accepted yield of 2.5 percent that matched the floor rate in the overnight deposit facility.
The term deposit facility is Bangko Sentral’s latest tool to siphon off excess money in the financial system.
The interest rate corridor system is expected to help improve monetary policy transmission and limit interest rate volatility. Bangko Sentral said with this, banks would manage their liquidity better, there would be increased interbank market activity, which could strengthen pricediscovery process, add depth to money markets and eventually help develop capital markets.