The central bank reduced the volume of the weekly term deposit facility (TDF) auction, but financial institutions remained cautious toward parking their funds in the instruments meant to siphon off inflationary idle funds from the economy.
At the same time, banks shied away from the longer-term tenors offered by the Bangko Sentral ng Pilipinas (BSP) in anticipation of a possible interest rate hike next week during the policy setting meeting of the Monetary Board.
“Liquidity is tight and funding is expensive, therefore there’s no interest to participate in the TDF market,” said one bank treasurer requesting anonymity. He explained banks also tended to pay off expensive deposits from their maturing placements with the central bank, hence the recent lukewarm interest in the facility.
During Wednesday’s term deposit facility auction, financial institutions pushed interest rates marginally higher on the seven- and 14-day instruments, but the yield on the 28-day facility declined slightly on weak demand.
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The total volume for the entire TDF auction was reduced by the central bank to P70 billion this week from P100 billion last week in anticipation of the diminished interest from banks.
The yield on the seven-day term deposit facility rose to 4.3884 percent from the previous week’s 4.3744 percent. Banks tendered P60.3 billion worth of bids for the P40 billion on offer, with the central bank making a full award of P40 billion.
