BSP belittles yield rate increase of TDF

The central bank on Wednesday belittled the slight increase in the yield rate of its term deposit facility.

The term deposit auction of the central bank was oversubscribed for the thirteenth consecutive week on Wednesday, with bids exceeding the total offer of P90 billion.

Data released by the Bangko Sentral ng Pilipinas (BSP) revealed the P10-billion, seven-day facility reaped P44.699 billion of bids at an average yield rate of 2.5 percent.

The bids for the 28-day facility totaled P191.664 billion, compared to the P80 billion on offer, at an average yield rate of 2.512 percent—slightly higher than the usual 2.5-percent.

"The rate beyond 2.5 is not surprising because it's actually the expectation that at some point, the TDF (term deposit facility) rate will move towards the policy system," BSP Governor Amando M. Tetangco, Jr. told reporters on the sidelines of a Senate hearing.

"That's how we anticipate the IRC (interest rate corridor) system—to make the monetary policy stance of the BSP more effective," he added.

The central bank introduced the procedure in June, following the shift toward the interest rate corridor system.

No need to tweak policy

The BSP has since maintained there is no need to change monetary policy in view of the economic condition of the country.

“In our case, domestic conditions are such that you don’t see any need to adjust the stance of monetary policy at this time given a number of considerations, given that one, inflation continues to be manageable and we expect inflation to move within the target range in 2017. This year, it could end up somewhat below the lower bound,” Tetangco said.

The Monetary Board has forecasted inflation at 1.8 percent for the full-year 2016, and 3.1 percent for 2017.

“Overall, considering the relevant factors, there’s still no urgency to alter the policy stance at this time. But of course, as we’ve always said, we will remain data-dependent and ... continue to monitor the situation and see if there is a need to review or modify policy stance at some point. But right now, there’s no indication that there should be a change,” Tetangco said.

Last week, US Federal Reserve Chair Janet Yellen reinforced the US central bank position to raise interest rates later this year.

Tetangco maintained that any decision to adjust interest rates will largely depend on local conditions.

“There is at present no strict policy coordination, because central banks will have to take into account the idiosyncratic conditions in their respective jurisdictions and will render policy in accordance with what is required by local conditions,” he said.
 

The TDF is a tool used by the central bank to manage liquidity or money in the financial system. Under the facility, banks and trust entities bid for the interest yield which the BSP will pay for them to park their excess funds for seven or 28 days in the central bank vaults.

The 30-minute auction is held once a week at 9:20 a.m. with a minimum placement of P10 million. — VDS, GMA News