BSP cuts TDF volume ahead of tax season, Lenten break

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) slashed the volume of its term deposit auction facility (TDF) next week amid the high demand for cash due to the payment of taxes as well as the holidays during the Holy Week.

The BSP auction committee reduced the size of the auction next Wednesday to only P10 billion from this week’s P30 billion.

The BSP is set to auction only P10 billion worth of seven-day term deposits on Wednesday, half the volume of P20 billion this week. It will not bid out 14- and 28-day tenors.

BSP Deputy Governor Diwa Guinigundo said the auction committee has cited the higher demand for liquidity during the tax season and the Holy Week.

The deadline for the filing and payment for the 2018 income tax return is on April 15 and there is a long weekend with the holidays on April 14 and 15 due to Maunday Thursday and Good Friday.

“(There is) no use to mop up higher liquidity when it is expected to go somewhere else like withdrawals to finance spending during the holidays and payment of taxes,” Guinigundo said.

The seven- and 14-day term deposits continued to fetch lower yields last Wednesday as banks continued to park their excess funds in the central bank facility amid the easing inflation environment.

The yield of the seven-day tenor eased for the second straight week to 3.9 basis points to 4.8943 percent from 4.9333 percent last week, while the 14-day term deposits yielded 4.9148 percent or 8.21 basis points lower than last week’s 4.9969 percent.

The BSP has not auctioned 28-day term deposits for the third straight week.

The facility was oversubscribed with bids reaching P50.32 billion versus the P30 billion offering.

Tenders for the P20 billion seven-day term deposits amounted to P29.69 billion, while bids for the 14-day tenor reached P20.62 billion or more than double the offer size of P10 billion.

Declining inflation has given the BSP’s Monetary Board more space for policy easing after a tightening episode that saw interest rates increase by 175 basis points in five straight rate-setting meetings last year to curb rising inflationary pressures.