TDF oversubscription ‘may prompt tighter monetary policy’ – analysts


Oversubscription to the term deposit facility (TDF) at Wednesday’s auction indicates the Philippine economy has a high level of liquidity, analysts said, affirming their view that the central bank may tighten its monetary policy setting this year.

The Bangko Sentral ng Pilipinas (BSP) said it remains in a “wait-and-see” mode over the TDF volume adjustment.

The BSP fully awarded the P180-billion TDF offer at the latest auction. The total bids for the seven- and 28-day facilities exceeded P260 billion.

Bids on the seven-day tenor totaled P55.49 billion, while the 28-day facility drew P207.41 billion.

“This week’s oversubscription is a result of ample liquidity in the domestic financial system,” Land Bank of the Philippines’ Guian Angelo Dumalagan said.

Seeing a signal from the BSP that it could increase the size of its future auctions to siphon off excess funds, Dumalagan said “the abundance of money in the system supports the view of an increase in policy rates by midyear.”

Another economist, Gundy Cahyadi, from DBS said although recent comments from BSP officials suggested no rate hike was imminent, the numbers out so far, however, indicated “strong growth momentum in the economy.”

Cahyadi warned that risks are clearly tilted toward a policy tightening this year, adding, “Expect the BSP to turn more bullish starting with this week’s policy statement.”

The central bank is scheduled to announce its latest monetary policy setting today, Thursday.

“We continue to see two trends: one, sustained high liquidity conditions in the market and two, as a result, our counterparties are realizing their recent bids are rather on the high side given the liquidity and price conditions obtaining today,” BSP Deputy Governor Diwa Gunigundo said.

Despite the high level of liquidity and sustained demand for the TDF, Guinigundo said the BSP will still have to wait and see in terms of adjusting the TDF volume.

“It will be difficult to increase the volume and then render the market in a tighter condition. That is bad because we want to ensure that we help sustain the momentum of economic growth,” he explained.


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