The Philippine financial system continues to enjoy sufficient liquidity given the interest in the Bangko Sentral ng Pilipinas’ term deposit facility (TDF), a senior BSP official said.
“As we indicated in previous TDF auctions, domestic liquidity remains ample. This is clearly shown by the oversubscriptions across all tenors today (Wednesday),” central bank Deputy Governor Diwa Guinigundo told reporters in a text message.
The liquidity-mopping facility was oversubscribed across all tenors during Wednesday’s auction, with total bids hitting P68.09 billion.
The TDF, introduced by the Bangko Sentral after the adoption of the interest rate corridor in June 2016, aims to improve the central bank’s influence on market rates and ultimately enhance monetary policy.
The seven-, 14- and 28-day offerings were all oversubscribed, prompting the BSP to award the full P20 billion, P20 billion and P10 billion up for purchase.
The rate for the seven-day facility rose to 5.1565 percent from 5.1411 percent, the 14-day tenor climbed to 5.1828 percent from 5.1765 percent, while the 28-day tenor slipped to 5.1839 percent from 5.1788 percent.
“Liquidity [is] obviously derived from sustained reflow to the banks after the long holiday season and the sustained disbursement by the national government (NG) including its infrastructure executing departments,” Guinigundo said.
Given recent concerns over liquidity, he stressed that the market should understand that timing should be considered when observing monetary conditions.
“At the first instance, the market may appear low on liquidity after the BTr (Bureau of the Treasury) completes one funding exercise. The proceeds of this actually goes to the BSP as [the] NG depository,” he explained.
“Once the NG starts to fund public disbursements as authorized by the DBM (Department of Budget and Management), the same liquidity goes back to the system and [is] redeposited with the banks, which in turn place them with the BSP, and hence the oversubscription, or lend it out,” he added.
Guinigundo also noted that there would be more permanent reductions to domestic liquidity if the BSP started selling foreign exchange and retained the proceeds, reflecting negative market sentiment and leading to sustained capital outflows.
“This is clearly not the case today,” he assured.
Money supply grew faster in December despite an easing in bank lending, with domestic liquidity or M3 expanding by 9.2 percent year-on-year to P11.612 trillion, faster than November’s revised 8.5 percent.
Month-on-month and seasonally adjusted, M3 growth decreased by 0.2 percent.