Two-week term deposits on offer this week amid investor demand

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By Melissa Luz T. Lopez,
Senior Reporter

THE Bangko Sentral ng Pilipinas (BSP) will start offering two-week term deposits this week in response to “strong interest” among banks, as the central bank steps up its efforts to mop up excess liquidity in the system.

The central bank announced that the 14-day tenor will be offered this Wednesday with an initial P20-billion volume. This will add to the P40 billion worth of seven-day instruments and P20 billion under the 28-day term to be sold under the term deposit facility (TDF), bringing the total volume to P80 billion.

“The offering of the 14-day TDF tenor is in response to the strong interest of BSP’s various counter-parties for a tenor longer than seven days but shorter than 28 days following a series of BSP consultations,” the central bank said in a Feb. 9 statement posted on its Web site.

“This is also expected to further refine the BSP’s instruments and operations under the interest rate corridor system,” the BSP added, noting that the new tenor has been introduced in keeping with a “more market-based approach” in its operations.

BSP Deputy Governor Diwa C. Guinigundo said in December that they have been in talks with banks to possibly introduce a third tenor for the TDF, which will help the monetary authority capture excess money supply more efficiently.

The TDF is currently the central bank’s main tool to shore up surplus funds in the financial system. The window allows banks to park the idle cash they hold under the BSP in exchange for a small margin, which in turn will prod market rates to move closer to the three percent benchmark set by the central bank.

Some analysts have said that a two-week duration would be a viable offering for the term deposit auctions, as the market largely prefers short-termed instruments.

Mr. Guinigundo has also said that banks favor shorter tenors as these lend more “flexibility” in managing their funds as they deploy cash for lending, withdrawals, foreign exchange, offshore investments and debt payments.

Last week, the central bank reopened the month-long tenor as liquidity levels continued to normalize after some tightness seen over the holiday season in December.

Tenders reached P51.43 billion for the P20-billion auction size, which drove the average yield down to 3.0183% from the 3.4954% fetched during the Dec. 13 exercise.

Total demand reached P140.003 billion, more than double the P60 billion which the BSP wanted to sell.