ANALYST:

PH awash with cash despite TDF undersubscription

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THE term deposit facility (TDF) of the central bank failed to draw enough bids anew on Wednesday, but an analyst said such should not cause any alarm as the financial system remains awash with cash.

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Out of the P180-billion offer, the Bangko Sentral ng Pilipinas (BSP) awarded only more than P143 billion.
Bids for the seven-day tenor were oversubscribed at P66.50 billion, prompting the BSP to fully award the P30-billion offer.

But the 28-day TDF was undersubscribed anew, attracting only P114.11 billion, and prompting the BSP to award only P113.11 billion against the weekly offer of P150 billion.

The interest rate for the seven-day facility fell to 3.3068 from 3.3615 percent, and for the 28-day tenor to 3.4471 percent from 3.4565 percent.

“Even though there might be undersubscription for this particular tenor—maybe they like better rates—overall, there’s still a lot of liquidity in the system just being parked and doing nothing,” said Marc Bautista, Metropolitan Bank & Trust Co. (Metrobank) assistant vice president and head of research.

The overall liquidity parked in the BSP’s term deposit and short-term lending are almost around more than P1 trillion, Bautista noted.

This level of liquidity, when complemented by a low reserve requirement ratio for banks, can easily finance the government’s ambitious six-year infrastructure spending program of P8.4 trillion.

The reserve requirement is the proportion of deposits banks need to keep with the BSP, against the amount that can be loaned out.

Since May 2015, the central bank, 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.

“Conceptually, if you have an P8.4 trillion infrastructure spending, and if it were all bank loans, it would give you a sense of how much liquidity there is. A P1 trillion peso liquidity—if it is translated to loans—and the BSP, for example, drops the reserve requirement from 20 percent to 10 percent, can easily lead to P10 trillion in money supply,” Bautista said.

“That can easily pay for P8.4 trillion of the government’s infrastructure budget. That’s what I am talking about when I say there’s a lot of liquidity in the system,” he added.

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