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TDF yields climb across tenors as demand eases

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term deposit facility (TDF)
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By Melissa Luz T. Lopez
Senior Reporter

YIELDS under the central bank’s term deposit facility (TDF) climbed across all tenors yesterday, as demand eased particularly for the week-long instruments.

The Bangko Sentral ng Pilipinas (BSP) received P117.127- billion tenders at its Wednesday auction, slightly higher the P110 billion on offer but less than the P130.488-billion bids last week.

Banks sought higher rates across all tenors compared to a week ago.

The seven-day tenor even saw bids drop below the P50 billion offered by the central bank to P43.751 billion, compared to the P53.368-billion demand seen the previous week. As a result, the average yield climbed to 3.0685% from 2.8164%.

Bids for 14-day term deposits also slipped to P44.497 billion from P46.765 billion, although still higher than the P40-billion offer. This is the third auction that carried a two-week term.

The new instruments fetched a 3.0984% average yield, also higher than 2.9798% previously.

Demand for the 28-day instruments also narrowed to P28.879 billion from the P30.355 billion which investors wanted to park last week, though still higher than the P20 billion placed on the auction block.

Rates climbed to average 3.1665% from the 3.0258% yield seen during the Feb. 21 exercise.

The TDF is the central bank’s main monetary tool to capture excess funds in the financial system. The facility allows banks to park idle cash under the BSP in exchange for a small return.

Any excess cash that have not been deployed for loans, foreign exchange and debt payments can be parked under the central bank window in order to make small gains.

This system, in turn, is expected to bring market rates closer to the three percent benchmark set by the BSP.

The BSP employs the “auction-based” operations to have a better handle on market loan rates, after it introduced a one percentage point cut in the 20% reserve requirement ratio (RRR) imposed on universal and commercial banks.

The adjustment, which takes effect on March 2, has been deemed “operational” and “neutral” in terms of monetary policy orientation.

“The key reason it (BSP) is lowering RRR is to promote a more efficient and level financial system that’s less biased against deposit-taking financial institutions which creates market distortions,” BSP Governor Nestor A. Espenilla, Jr. told reporters over the weekend.

The reserve cut will unleash some P90 billion into the financial system, which monetary authorities expect to be mopped up through the TDF and other policy tools.