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Bids for term deposits drop after RTB auction

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By Melissa Luz T. Lopez,
Senior Reporter

TERM DEPOSITS offered by the Bangko Sentral ng Pilipinas (BSP) yesterday saw tepid demand, with banks left with a smaller amount of excess funds to deploy as they opted to purchase retail bonds offered by the government.

Bids for Wednesday’s auction of term deposits totalled a mere P92.776 billion, sliding from the P114.346 billion received a week ago and settling well below the P130 billion which the central bank wanted to sell, with the month-long instruments not even halfway filled.

Banks crowded the seven-day tenor as offers reached P52.415 billion, up from the P45.16 billion received last week and surpassing the P40-billion auction size. As a result, yields stood barely changed at 3.4057% from 3.4054% previously.

On the other hand, tenders for the 28-day term deposits slid to P40.361 billion against the P90-billion offering. The amount likewise dropped from last week’s P69.186 billion.

As a result, the average rate steadied at 3.4926% from 3.4933% a week ago, hovering close to the 3.5% ceiling set by the central bank.

The term deposit facility is currently the central bank’s main tool to capture excess liquidity in the financial system by allowing banks to place extra cash they hold, in exchange for a small return. Through this, the BSP expects to influence market rates to log closer to the 3% benchmark rate, coming from below the 2.5% floor of the interest rate corridor.

BSP Deputy Governor Diwa C. Guinigundo said the weak demand seen during the exercise reflected “lower excess liquidity” as banks opted to invest these funds on instruments with better yields.

“This is due to the recent issue of P130 billion in retail Treasury bonds (RTB) by Bureau of the Treasury,” Mr. Guinigundo said in a text message to reporters, which served as a fresh avenue to deploy the surplus funds apart from granting more loans, bond investments, and foreign currency purchases.

The government ramped up the RTB volume from an initial P30 billion following “tremendous” demand. The five-year papers come with a 4.625% coupon rate and may be availed of by individual investors from Nov. 20-29. 

“[T]he expected US Fed tightening in December also underlies this large undersubscription,” the central bank official added, reflecting a wait-and-see stance taken by market players.

Investors are on the lookout for a fresh rate hike from the United States Federal Reserve during their Dec. 12-13 review.

The central bank will again offer P130 billion in term deposits next week.

BSP Governor Nestor A. Espenilla, Jr. has cited monetary policy tightening in advanced economies as a key risk to financial markets, with the fresh “lift-off” expected to trigger bouts of volatility over the near term.

Despite this, the Philippine economy remains well-equipped to ride these headwinds and maintain price and financial stability.

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