Holidays prompt temporary cut in TDF offer

MANILA, Philippines — Higher demand for cash during the upcoming Labor Day and barangay election holidays has prompted the Bangko Sentral ng Pilipinas (BSP) to reduce anew the volume of term deposits to be offered next week.

BSP Governor Nestor Espenilla Jr. said the size of the term deposit auction facility (TDF) has temporarily been reduced by P20 billion to P90 billion starting Wednesday from this week’s P110 billion.

“There will be a temporary cut in TDF volume next week because of upcoming holidays. Then back to usual,” Espenilla said.

BSP Deputy Governor Diwa Guinigundo said the auction committee decided to reduce the volume of the seven and 14- day term deposits due to the holidays on May 1 for Labor Day as well as 14 for the barangay and Sangguniang Kabataan (SK) elections.

“We decided to reduce the volume of TDF for seven and 14 days because of the expected higher demand for liquidity given the forthcoming holidays,” Guinigundo said.

The BSP decided to lower the size of the 14-day term deposits to P40 billion from P50 billion as well as the 14-day tenor to P30 billion from P40 billion. The size of the 28-day offering was retained at P50 billion.

The central bank slashed the volume of the TDF to P90 billion last March 28 in light of the higher demand for cash during the Holy Week holidays.

The size was raised anew to P110 billion last April 4 as liquidity started to flow back into the financial system after the Holy Week break.

The TDF is a key liquidity absorption facility used by central banks for liquidity management. It is tasked to withdraw a large part of the structural liquidity from the financial system as part of the shift to the interest rate corridor (IRC) framework in June 2016 to bring market rates closer to the BSP policy rate.

About P90 billion worth of funds were released into the financial system after the BSP slashed the reserve requirement ratio for banks last March 2.

The additional liquidity was easily absorbed by the BSP facilities as the volume of the TDF was increased to P110 billion from only P40 billion at the start of the year with the reintroduction of the 28-day term deposits and the launch of the 14-day tenor.