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TDF yields ease as BSP says it will continue lending to gov’t

YIELDS ON term deposits auctioned off by the Bangko Sentral ng Pilipinas (BSP) on Wednesday continued to fetch lower yields as the central bank signaled it could lend more funds for the government’s pandemic response.

Total bids for the central bank’s term deposit facility (TDF) reached P756.711 billion yesterday, higher than the P570-billion offering as well as the P726.615 billion in demand seen last week.

Broken down, the seven-day term deposits fetched bids worth P291.491 billion, going beyond the P210 billion auctioned off by the BSP but lower than the P305.273 billion in tenders logged the previous week.

Accepted rates for the tenor were seen from 1.6% to 1.65%, a narrower range compared with the 1.6% to 1.67% seen last week. With this, the seven-day paper’s average rate dropped 1.45 basis points (bps) to 1.6325% from the 1.647% logged previously.

Meanwhile, demand for the two-week deposits reached P465.22 billion, above the P360 billion on the auction block as well as the P421.342 billion in bids recorded last week.

Lenders asked for yields ranging from 1.6% to 1.6743%, a smaller band compared with the previous week’s 1.6% to 1.7%. This caused the average rate of the 14-day papers to settle at 1.6534%, down by 1.39 bps from the 1.6673% seen on Jan. 13.

The BSP did not offer the 28-day deposits for the 14th straight week. This follows the start of its weekly auctions of short-term bills with the same tenor.

The term deposits and BSP securities are tools used by the central bank to mop up excess liquidity in the financial system and to better guide market interest rates.

Recent signals from the BSP that it will continue to lend to the government if the need arises pulled down TDF yields, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

“[A] possible increase in BSP’s direct lending to the National Government would reduce the need for the government to borrow from the local market, thereby reducing crowding out effects or reducing competition with other borrowers partly caused the latest easing of the TDF yields,” Mr. Ricafort said in a text message.

BSP Governor Benjamin E. Diokno last week said the National Government can still access direct advances from the central bank. Republic Act No. 11494 of the Bayanihan to Recover as One Act allows the BSP to provide up to 30% or about P820 billion in direct provisions to the National Government to help it finance its response to the coronavirus pandemic

The BSP in December approved a P540-billion zero-interest direct advance to the National Government. This followed a P300-billion reverse repurchase agreement with the Bureau of the Treasury in March and a P540-billion advance in October, both of which have already been paid.

Mr. Diokno said direct advances from the BSP will help the government save on interest payments.

He also said the financing will “not be a permanent feature of fiscal and monetary relationship” and will stop when the economy recovers. — Luz Wendy T. Noble

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