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Demand for TDF drops ahead of reserve requirement reductions

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BIDS FOR term deposits declined further on Wednesday ahead of the first round of cuts to lenders’ reserve requirement ratios (RRR) taking effect this week.

Tenders for the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) auction yesterday totalled just P29.155 billion, well below the P40 billion on offer. This was also less than the P39.113 billion in bids seen last week.

Demand for the eight-day papers on offer yesterday stood at P14.98 billion, failing to fill the P20 billion on the auction block and also declining from the P20.455 billion in tenders received for the seven-day tenor last week.

Accepted yields ranged between 4.5% and 4.7679%, slightly below the 4.453-4.76% margin seen the previous week. Thus caused the average rate of the eight-day term deposits to decline to 4.6187% yesterday from 4.6375%.

Meanwhile, total tenders for the 15-day papers amounted to just P6.11 billion yesterday, lower than the P8.286 billion in bids last week for the two-week tenor and also below the P10 billion up for grabs.

Banks asked for returns within 4.5%-4.75%, slightly wider than last week’s range of 4.5-4.7%. The average yield on the 15-day term deposits likewise slipped to 4.591% on Wednesday from the previous week’s 4.5999%.

The 28-day papers, on the other hand, were met with tenders totalling P8.065 billion, down from the P10.372 billion logged a week ago and less than the P10 billion the BSP offered yesterday.

Yields sought by banks for the one-month papers were steady at the 4.5-4.75% range. Still, the average rate dropped to 4.5974% yesterday from 4.638% last week.

The term deposit tenors offered yesterday were adjusted due to the regular public holidays on June 5 and June 12.

The TDF stands as the central bank’s primary tool to shore up excess funds in the financial system and to better guide market interest rates.

Earlier this month, the BSP cut benchmark interest rates by 25 basis points (bp), bringing the interest rate on the central bank’s overnight reverse repurchase facility to 4.5%. The rates on the overnight lending and deposit facilities were also reduced accordingly to 5% and 4%, respectively.

Sought for comment, BSP Monetary Board Member Felipe M. Medalla said in a text message that banks were likely holding on to their funds as they want to deploy these elsewhere.

“They don’t have low appetite (for TDF). They have high needs,” he said. “They plan to deploy the cash that they did not place in the TDF (e.g. make new loans).”

Last week, Mr. Medalla said liquidity in the system was “tight” ahead of scheduled cuts to banks’ reserve ratios.

The BSP will slash the RRR of lenders by a percentage point effective May 31 to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks.

The central bank has said that a percentage point cut in big banks’ RRR will unleash P90-100 billion into the financial system, while another P22 billion is seen to be released due to a 100-basis-point cut in the reserve ratios of smaller lenders.

Further reductions will be implemented after this week’s round of cuts to eventually bring big banks’ RRR to 16% and thrift banks’ ratio to 6% by July.

BSP Governor Benjamin E. Diokno has said he wants to reduce big banks’ reserve requirement ratio to single digits by 2023 to put the rate at par with those being implemented in neighboring countries. — RJNI

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