Term deposit rates ease on high demand

MANILA, Philippines — Term deposits fetched lower rates across all tenors as banks swarmed the first auction for 2019 with funds coming back into the financial system.

The yield of the seven-day tenor dropped by 11.19 basis points to 5.0784 percent at the term deposit auction facility (TDF) from a record high of 5.1903 percent last Thursday.

The 14-day term deposits declined by 6.95 basis points to 5.1319 percent from 5.2014 percent, while the 28-day term deposit rate also eased 4.22 basis points to 5.1672 percent from 5.2094 percent.

Bangko Sentral Deputy Governor Diwa Guinigundo said banks are able to place more funds in the central bank facility after the holidays.

 “As we indicated in the past, we expect funds to start coming back to the banks after the holiday season. It was rather fast that the exodus took place right after New Year. Simply shows the market is not actually tight.” Guinigundo said.

The P30-billion TDF was oversubscribed as tenders across the three tenors reached P46.08 billion.

Tenders for the P10 billion seven-day term deposit offering reached P16.73 billion, while the bids for the P10 billion 14-day term deposit issuance amounted to P16.73 billion.

The 28-day tenor was also undersubscribed as bids for the P10-billion issuance reached P14.26 billion.

After slashing the volume to P30 billion, the auction committee raised the volume to P50 billion as liquidity is slowly coming back into the financial system.

The BSP doubled the volume of the seven- and 14-day tenors to P20 billion each, while the volume of the 28-day term deposits was retained at P10 billion.

The central bank adjusts the size of the TDF based on liquidity forecasts.

The TDF was launched in June 2016 as part of the shift to the interest rate corridor (IRC) framework to guide short-term market rates towards he BSP policy interest rate. It also serves as a liquidity absorption facility of the central bank.