TDF auction does well for monetary policy


The Bangko Sentral ng Pilipinas (BSP) has said that its open market operations are beginning to “bite” into the financial system as shown by the results of the latest term deposit facility (TDF) auction on Wednesday.

“We are seeing the initial signs that the open market operations of the BSP under the IRC [interest rate corridor]are beginning to bite,” BSP’s deputy governor, Diwa Guinigundo, told reporters in a text message on Wednesday.

One of the signs, he said, was the bid-to-cover ratio for the seven-day tenor, which continued to decline.

Guinigundo noted that the TDF’s bid to coverage ratio for the seven-day tenor has gone down from 5.86 percent on June 8, to 2.87 percent on August 17, to Wednesday’s 2.53 percent.

“This means over-subscription is declining and more funds are being mopped up by the BSP increasingly through the term deposit facility,” he said.

Another sign, he added, was the increasing interest rate in the 28-day tenor, which rose from 2.500 percent last week to 2.501 percent on Wednesday.

Interest rates, he explained, “are now beginning to inch up, given the liquidity dynamics among the banks both in the interbank and with the BSP.”

“We should see as a result of the IRC implementation market rates slowly moving towards the policy rate, signaling a more effective monetary policy,” Guinigundo noted.

The BSP awarded P70-billion worth of TDF—P10 billion in the seven-day tenor and P60 billion in the 28-day tenor—rejecting most of the over P190 billion tenders for the liquidity management tool under the IRC.

Of the total tenders, P48.03 billion was for the seven-day term deposit, and P151.87 billion for the 28-day term deposit—far exceeding the P10 billion and P60 billion set respectively for the auction.

The offer was oversubscribed with the auction priced at an average of 2.5 percent for both tenors.


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