THE central bank will increase the weekly volume of the term deposit facility (TDF) to P130 billion from the current P110 billion to make its four-month old interest rate corridor (IRC) scheme more reflective of its policy rates, monetary officials said Wednesday.
The Bangko Sentral ng Pilipinas (BSP) is raising the 28-day TDF offer to P120 billion from P100 billion, starting November 9. The volume for the seven-day tenor was maintained at P10 billion.
“Right now, we have increased the volume that we will be mopping up from the market,” BSP Deputy Governor Diwa Guinigundo told reporters. “The rate of interest seems to be moving up–again, this is consistent with the thrust of the Interest Rate Corridor to guide market rates closer to the policy rate.”
The BSP adopted the IRC on June 3, which is aimed at guiding short-term market rates towards the BSP’s policy rate or the overnight reverse repurchase (RRP) rate.
“We would expect that as we migrate more and more funds from overnight deposit facility to TDF, then there will be a rationalization of interest rates and market rates will now move closer to the BSP’s policy rate at 3 percent, but that can only be done when we get more and more liquidity in the system, and that can be achieved when we increase in a progressive way the volume of liquidity that we offer to the market,” Guinigundo further explained.
During Wednesday’s auction, the central bank awarded P110 billion worth of TDF—P100 billion of the 28-day tenor and P10 billion of seven-day TDF. It rejected most of the more than P230 billion of tenders.
The total tenders consisted P31.31 billion for the seven-day term deposit and P200.34 billion for the 28-day facility.
The seven-day TDF was priced at 2.5 percent and the 28-day tenor at 2.56 percent.
“We continue to see good interest in the auction facilities. While the average rates have inched up for both the 7-day and 28-day auctions, the increments have been minimal,” BSP Governor Amando Tetangco Jr. said in a text message.
“The bid to cover ratios have also remained broadly unchanged, indicating there could be room for further adjustments in the auction sizes for future auctions,” he added.
The bid-to-cover ratio for the seven-day TDF fell at 3.13 percent from the 3.5 percent last week.
The bid-to-cover ratio of the 28-day facility rose to 2 percent from 1.96 percent.
The ratio compares the number of total bids in an auction with the number of acceptable bids. The higher the ratio, the more aggressive are the bidders, while a lower ratio indicates that fewer bids are being rejecte.