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TDF yields up on RRR cut expectations

tdf yields up on rrr cut expectations - TDF yields up on RRR cut expectations

TERM DEPOSIT yields saw a slight uptick on Wednesday as the market anticipates the cut in lenders’ reserve requirement ratios (RRR) will come later.

The central bank received bids amounting to P74.465 billion for its term deposit facility (TDF) on Wednesday, lower than the P90 billion it wanted to sell.

This is also lower compared to the P96.435 billion the Bangko Sentral ng Pilipinas (BSP) received last week against a P80-billion offering.

Broken down, demand for seven-day papers amounted to P26.616 billion, falling short of the P30 billion on offer but beating last week’s P32.598 billion in bids for a P20-billion offering.

Rates for this tenor ranged from 4.25% to 4.65%, a slightly wider margin compared to last week’s 4.29% to 4.385% range. The average rate settled at 4.3589%, 2.66 basis points (bps) higher than last week’s 4.3323%.

Meanwhile, 14-day papers fetched bids totaling P23.07 billion, undersubscribed against the P30 billion the BSP offered. It was also below the P31.314 billion bids tendered last week against a P30-billion offer.

Banks sought returns ranging from 4.3% to 4.65% from the two-week papers, inching up from last week’s 4.3 to 4.545% range. The average rate was seen at 4.4391%, 2.52 bps higher than last week’s 4.4139%.

Meanwhile, the 28-day tenor attracted tenders worth P24.779 billion against the P30 billion on offer, also a decline from last week’s P32.523 billion worth of bids for the P30-billion offer.

Yields sought by lenders stood at between 4.37% to 4.65%, a wider band compared to last week’s 4.3-4.5140% range, bringing its average to 4.4577%, a 0.01 bp slip from than last week’s 4.4578%.

For Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., “the current week is crucial for monetary policy and its stakeholders, like banks and other financial institutions.”

“One driver that may be important to point out is that a rate cut decision is still to be delivered this week (September 26), and the resulting consensus is to wait until a cut is delivered to maximize yields. Although not necessarily automatic in pre-monetary policy rate cuts, this can be a valid and potential driver for the said under subscription seen,” he said.

Meanwhile, Rizal Commercial Banking Corp. economist Michael L. Ricafort cited the BSP chief’s remarks on the timing of the cut in RRR.

“TDF auction yields were mostly slightly higher…after the latest signals from BSP Governor [Benjamin E.] Diokno that any cut on banks’ RRR on September 26, 2019 would be unlikely,” Rizal Commercial Banking Corp. Michael L. Ricafort told BusinessWorld in an email.

“The slight uptick in TDF yields and lower bids/appetite for the TDF auction may also have to do with the recent increase in local fuel pump prices, though global crude oil prices already eased and are just modestly higher,” Mr. Ricafort added.

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

Asked whether the monetary board will also move on bank RRR, Mr. Diokno said, “Hindi siguro (Maybe not)… pero yung RRR naman is always in the agenda (but the RRR is always on the agenda). Pwede naming i-announce ‘yun (We can announce it) anytime. Yung RRR walang definite schedule yan. (The RRR has no definite schedule),” he told reporters on Tuesday.

The Monetary Board policy meeting on Thursday could bear the announcement of a further slash in policy rates, amid the central bank chief’s hints.

The previous MB meetings held on May 9 and Aug. 8 paved way for rate cuts for overnight reverse repurchase (RRP), overnight deposit and overnight lending to 4.25%, 3.75% and 4.75%, respectively. — L.W.T. Noble

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