For the first time since the Bangko Sentral ng Pilipinas (BSP) sold so-called term deposits earlier this year, the interest-bearing instruments attracted higher rates as market players become more familiar with the central bank’s new monetary tool.
Results at Wednesday’s term deposit facility (TDF) auction showed the offered 28-day tenor fetching a higher weighted average accepted yield of 2.512 percent, which was higher than last week’s 2.5 percent.
According to the BSP, the increase in yield was in line with expectations as the instruments soak on even more liquidity than previous.
“Under the IRC [interest rate corridor], the BSP, in general, would be accepting all the bids until we have filled the offered volume for the TDF. We’ve calibrated the auction sizes, so that market rate movements that will close the gap with our policy rate would also be gradual,” BSP Governor Amando M. Tetangco Jr. said.
Earlier this year when the BSP first implemented the IRC, the policy-making Monetary Board agreed to create a symmetrical corridor for the new system—with the floor at 2.5 percent and the ceiling at 3.5 percent. The central bank’s main policy rate remains the overnight reverse repurchase rate set at 3 percent at the moment.
The BSP earlier said it expects market rates to move closer to the main policy rate from its current level, which is nearer the 2.5-percent floor of the corridor, once the markets have already fully adjusted to the new system. This, according to the BSP, puts more teeth to the central bank’s monetary-policy rates.
“We have been observing that the bid-to-cover ratio has been declining gradually. This reflects greater market familiarity with the operational aspect of the IRC. Moreover it also shows the continued absorption of liquidity via the TDF,” Tetangco said.
Rates remain unchanged, however, for the seven-day TDF offer, which still fetched weighted average accepted yield of 2.5 percent.
“It’s a continuation of what we have been saying that as we mop up more and more liquidity, interest rates will be guided toward the policy rate. It’s now happening, first with the 28-day tenors then probably over time the 7-days will also be guided slowly toward the BSP policy rate,” BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said.
Both the 7-day and the 28-day tenors were oversubscribed, indicating high liquidity levels in the cash stream.
In particular, the amount tendered for 28-day TDFs totaled P191 billion, while the amount offered was only P80 billion.
For the 7-day tenor, total tenders stood P44.7 billion, while the offer was only P10 billion.