INVESTORS preferred the shorter tenor at the term deposit facility (TDF) auction on Wednesday ahead of the United States Federal Open Market Committee meeting, the central bank said.
The market is obviously taking a short-term view, given the flood of uncertainties that have emerged, an equity analyst said, while another noted now is the time for the Bangko Sentral ng Pilipinas (BSP) to cut the reserve requirement ratio (RRR) on banks.
“Ahead of FOMC tonight, there is market preference for the shorter tenor, even as it is widely expected that the Fed will keep rates steady. Just like the market, we will look out for the Fed’s assessment of labor conditions and outlook on inflation,” BSP Governor Amando Tetangco Jr. told reporters in a text message on Wednesday.
The BSP fully awarded the P180-billion TDF. The total bids for the seven- and 28-day facilities reached over P240 billion.
Bids on the seven-day tenor totaled P59.17 billion, while the 28-day facility garnered P181.29 billion.
“We will take any relevant information into consideration in our own assessment of domestic inflation dynamics at our policy meeting next week,” Tetangco, on the other hand, said.
Justino Calaycay Jr., marketing and research head at A&A Securities, said the travel ban imposed by US President Donald Trump and his upcoming appointment to US Supreme Court may have an impact on the long-term outlook.
“His “tirades” focusing on the euro’s value, plus allegations of “money market controls” by Japan and China contributed as well to the guessing game, if you will,” he said.
An analyst who requested not to be identified said higher TDF rates could give the central bank room to adjust the RRR.
“With TDF rates trending higher, this may be an opportune time for the BSP to slash RRR to release an additional P60 billion (given a 200 basis points cut) to infuse fresh funds into the system for productive uses,” the analyst said.
Since May 2015, the BSP has maintained the reserve requirement at 20 percent to prevent a rapid increase in liquidity and credit expansion, which could threaten the stability of the country’s financial system if left unchecked.
The analyst said the BSP could conceivably cut the RRR and announce a simultaneous increase in the TDF volume as a compensating factor in retaining the current policy stance.
“The increased peso liquidity freed up by the RRR cut will possibly find its way into the local bond market as anything that the yield curve can offer in terms of yield is still greater than zero, causing some downward pressure on yields, albeit temporarily,” the analyst said.