Term deposit rates rise across the board

MANILA, Philippines — Term deposit rates rose across the board yesterday, ahead of the impending reduction in the level of deposits that banks are required to maintain with the central bank.

The seven-day term deposits fetched a higher rate of 2.8164 percent from 2.7232 percent last week, while the 14-day tenor recorded a rate of  2.9798 percent, up from 2.8737 percent.

On the other hand, the yield of the 28-day term deposits rose to 3.0258 percent from last week’s 2.9650 percent.

The Bangko Sentral ng Pilipinas (BSP) raised the volume of the term deposit auction facility (TDF) to P110 billion from the previous volume of P80 billion as the financial system remained awash with cash.

Banks swarmed yesterday’s auction with bids for the three tenors reaching P130.48 billion against the offer size of P110 billion.

Tenders for the seven-day tenor amounted to P53.37 billion against the P50 billion offering, while bids for the 14-day term deposits reached P46.76 billion against the issue size of P40 billion.

Bids for the 28-day term deposits stood at P30.35 billion against the offer size of P20 billion.

The TDF is a key liquidity absorption facility used by central banks for liquidity management. The facility withdraws a large part of the structural liquidity from the financial system as part of the shift to the interest rate corridor (IRC) framework to bring market rates closer to the BSP policy rate.

After keeping interest rates unchanged last Feb. 8, the Monetary Board approved the reduction in the reserve requirement ratio (RRR) of banks to 19 percent from the current level of 20 percent starting March 2.

The move is expected to free up about P90 billion in additional liquidity into the financial system that would likely end up in BSP facilities or boost the banks’ lending portfolio.

BSP managing director Francisco Dakila Jr. earlier said the reduction was undertaken as the BSP now relies more on the weekly TDF to siphon off excess liquidity in the financial system and guide the market rates closer to the policy rates.