‘Money supply stable despite low TDF demand’


Central bank Dep-Gov Guinigundo cites M3 growth at 13%

The Philippines’ overall liquidity situation remains stable despite the undersubscription to the 28-day tenor in last week’s term deposit facility (TDF) auction, the central bank said.

The Bangko Sentral ng Pilipinas (BSP) awarded just more than P143 billion at Wednesday’s auction, short of its total P180-billion offer.

“We need to clarify that the overall liquidity situation has been broadly stable as M3 (money supply) growth continues to be around 13 percent year-on-year,” BSP Deputy Governor Diwa Gunigundo told reporters in a text message over the weekend.

Although bids for the 7-day tenor at the last auction exceeded the P30 billion offer and reached P64.53 billion, prompting the BSP to award the offer fully, bids for the 28-day facility reached only P137.46 billion—short of the P150-billion offer. The BSP awarded P113.91 billion.

Guinigundo explained that the BSP made a partial award in the longer-term tenor because the tenders were lower than the offering and some of the bids breached the interest rate corridor, which is precisely meant to minimize interest rate volatility and guide them closer to the 3.0 percent policy rate.

As a result, the interest rate for the 28-day tenor rose to 3.43 percent from 2.95 percent.

“This is the rule of the game, which was stressed during the test and training period with the banks,” Guinigundo added.

Explaining what the auction results indicate, the BSP official said the low bid-to-cover ratio for the 28 day TDF—at 0.91 percent—simply shows the impact of seasonal demand for cash that the banks have to provide for, the prohibition of trust entities from placing deposits with the BSP TDF, and their purchases of foreign exchange from the market to service their clients’ increased demand for US dollars.

“These factors led to lower placements of banks with the BSP and hence, higher premium for these deposits,” he added.

Guinigundo, however, stressed that the BSP remains vigilant over the liquidity conditions and that once it sees any tightness in domestic liquidity, it will make the necessary adjustment to its monetary operation.

“This is the essence of the interest rate corridor, which makes use of liquidity management to enhance the effectiveness of the policy rate in the face of excess liquidity in the system,” he said.

The TDF is a key liquidity absorption facility commonly used by central banks for liquidity management.
The BSP cannot issue its own debt instruments, but the TDF can withdraw a large part of the structural liquidity from the financial system to bring market rates closer to the BSP policy rate.


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