The Bangko Sentral ng Pilipinas’ (BSP) on Wednesday said its weekly term deposit facility (TDF) would be cut to P150 billion from P180 billion starting September 6, with a senior official noting that banks were preferring to lend instead of parking excess funds with the central bank.
For the 28-day facility, the weekly offering will be trimmed to P110 billion from P140 billion. The volume for the seven-day tenor will be kept at P40 billion.
Centranl bank Deputy Governor Diwa Guinigundo said the decision to reduce the 28-day volume was based on the recognition that sustained economic expansion had boosted demand for credit.
“Banks are now lending more to their clients instead of placing their excess funds with the BSP,” he said in a text message message to reporters.
Guinigundo added that companies were also using their peso funds to purchase foreign exchange for import requirements. Some have also been investing outside the Philippines, he added.
“Some are prepaying their external obligations. Thus, it is the excess liquidity of the banks that has declined recently and not the domestic liquidity per se,” he said.
The Bangko Sentral no longer has to do as much mopping up as before because funds are being used for productive uses, Guinigundo claimed.
“The volume of offering is also based on our liquidity forecasts that remain consistent with our inflation and growth forecasts,” he said.
The TDF is one of the liquidity-mopping tools introduced by the Bangko Sentral following the adoption of the interest rate corridor in June last year. It aims to improve the central bank’s influence on market rates and ultimately enhance monetary policy.
During Wednesday’s auction, the P180-billion TDF again failed to draw enough offers and the BSP awarded just over P141 billion.
The 28-day facility attracted just P109.85 billion in bids while the seven-day tenor was similarly undersubscribed at P32.42 billion. The central bank accepted all offers.
The interest rate for the seven-day facility rose to 3.3162 percent from 3.3124 percent while the yield on the 28-day tenor rose to 3.4961 percent from 3.4958 percent.
“Undersubscribed weekly TDF awards and tenders may indicate that banks would rather utilize its excess liquidity for lending not only both for balance sheet and tax position adjustments as well raising profitability in an economy that is expected to continue to post 6 percent to 7 percent annual GDP [gross domestic product]growth in the next five and a half years,” ING Bank Manila senior economist Joey Cuyegkeng said.