The Bangko Sentral ng Pilipinas (BSP) is not quite successful in persuading the various lenders, trust departments and others in the financial services arena to give up more of their idle funds and bring so-called excess liquidity under the ambit of its term deposit window.
This was based on latest auction results on Wednesday showing continued undersubscription of the BSP’s 28-day term deposit facility (TDF) contrasting sharply against the seven-day TDF, whose P40-billion offering was swamped by 171 percent more tenders than the BSP anticipated.
According to the BSP, the 28-day TDF attracted bids just slightly over P111 billion, or only 79.3 percent of at least P140 billion worth of bids the central bank was prepared to accept at the weekly auction.
“The interest rate was basically flat relative to last week, and I think it was also undersubscribed, again, BSP Governor Amando M. Tetangco Jr. said in a text message.
“The factors behind this would be the unwinding of trust departments of their placements in the TDF, increased lending by the banks to their corporate clients, and also there were private issue prior to this auction so some of the funds went to those issues,” he explained.
Data does show that liquidity levels among banks are on the high side, the same having grown in double-digits in the first three months and actually averaged 11.2 percent in March. The previous February, that same liquidity expansion averaged 12.6 percent.
In other words, the banks, trust institutions and others hesitate to go longer than a week at the TDF based on subscription numbers alone.
Seven-day tenders aggregated only P68.56 billion, clearly far more interest than the P40 billion the BSP was prepared to accept at Wednesday’s auction. This contrasted sharply against the underwhelming interest shown on the 28-day TDF that attracted only P111.1 billion of the minimum P140 billion the BSP was prepared to accept. In terms of yield, the short tenor declined slightly during the week from 3.2468 to 3.1918 percent on Wednesday. As for the 28-day TDF, yield was at 3.476 percent this week, broadly steady from 3.4764 percent last week.
Given this development, the central bank reiterated there continues to be ample liquidity in the system and vowed to continue to monitor and see if adjustments are necessary at some point.
“[This] means there continues to be sufficient liquidity in the system, particularly for the seven-day tenor because it’s oversubscribed again. So there continues to be strong interest in the short end of the curve,” Tetangco said.
Earlier, BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo attributed the undersubscription to the market caution and to so-called uncertainties locally and overseas.
“[There’s] still a lot of uncertainty in the market, uncertainty in the sense that anytime the US Fed can choose to do a third or even a fourth adjustment in the policy rate,” Guinigundo said.
“If you are holding a longer term instrument you’ll be locked in to that instrument. So the market basically prefers to go short term instead of going into 28 days. I think they have more flexibility,” he added.