THE CENTRAL BANK is studying possible tweaks to its term deposit facility (TDF) auctions that may include new tenors, with the adjustments expected to be finalized within the year.
“We are consulting with the industry with respect to [the TDF],” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo told reporters on Friday last week.
“We have reduced the volume. We now consider additional tenors, but we’re still discussing this with our counterparts.”
The TDF is currently the central bank’s main tool to capture excess money supply in the local financial system in order to bring market rates closer to the 3.0% policy rate of the BSP.
Under this system, banks can place their idle funds — those which are not deployed for loans or stand as reserves — for a small return capped at 3.5%.
Starting September, the BSP trimmed the weekly auction volume to P150 billion after nine straight months of P180-billion offerings, as the monetary authority saw that banks now had less funds to park under the under the 28-day facility.
Mr. Guinigundo previously said that banks may have also decided to use their extra cash to buy more dollars or settle foreign debts, rather than park them with low-yielding TDF instruments.
Since the volume reduction, the BSP official said monetary authorities will be conducting industry consultations on the interest rate corridor (IRC) facilities — more than a year after they were introduced — in order to gauge market interest and craft TDF tools that would respond to such needs. Recent auctions have shown steady appetite for the week-long term deposits, with the P40 billion offering always seeing a full award.
On the other hand, the month-long instruments have encountered tepid market reception, hence, the BSP’s decision to cut the auction size to P110 billion from P140 billion this month.
Mr. Guinigundo said the BSP is now studying the viability of introducing a new tenor.
“We cannot go very long because that will crowd out the T-bills,” he said, referring to the 91-day Treasury notes floated by the national government.
“We’re not sure yet as we are just sounding off.”
Any changes will be finalized in the coming months.
“Within the year we should be able to provide some indications on how to move the IRC forward. But right now, it’s very clear that the IRC is quite effective, the volatility of market interest rates has been reduced,” the central bank official said, noting that market rates have now crept within the 2.5-3.5% spread of BSP’s benchmark rates.
Two traders interviewed yesterday said there could still be room for a new tenor for the TDF given ample market liquidity.
“Reintroducing a new tenor — lalo kung (especially if) longer — I think there is still appetite for it,” one trader said in a telephone interview.
Another trader said the BSP may find it viable to offer 14-day and 21-day instruments as well, straddling the 28-day and the 91-day T-bills. — Melissa Luz T. Lopez