Bangko Sentral ng Pilipinas will increase by P50 billion the volume of the weekly auction of term deposits under the interest rate corridor system starting Dec. 1, 2016 to more effectively siphon off excess liquidity.
Data from Bangko Sentral web site showed the auction volume would be raised to P180 billion from P130 billion. This will be the biggest adjustment in weekly volume since the auction started in June.
The amount of week-long deposits will be increased by P20 billion, or to P30 billion from P10 billion, while the month-long deposits will be increased by P30 billion, or to P150 billion from P120 billion.
This is the sixth time Bangko Sentral is adjusting the volume of the weekly auction. The continuous oversubscription since the start of the auction in June encouraged Bangko Sentral to increase the volume five times, from the original P30 billion to P50 billion, P70 billion, P90 billion, P110 billion and P130 billion.
“We raised the auction size for both facilities for the December auctions as there is still a significant amount of liquidity flowing into our ODF [overnight deposit facility]. Capturing more liquidity in the longer tenors would help us better manage liquidity in the system,” Bangko Sentral Governor Amando Tetangco Jr. said in a text message.
The P130 billion offered to the public remained highly oversubscribed Wednesday, as banks and trust entities swarmed the weekly auction.
The week-long P10-billion deposits attracted total bids of P29.598 billion, fetching a weighted average accepted yield of 2.523 percent.
The month-long P120 billion deposits lured total tenders of P207.30 billion and had a weighted average accepted yield of 2.78 percent.
“The auction shows that the BSP facilities continue to be effective in mopping up excess liquidity in the system. We noted a decline in the tender amount in the 28 days from about P232 billion last week to about P207 billion this week. This may be due to market positioning ahead of seasonal requirements… The uptick in the auction average rates continued to be in line with price movements in the recent past auctions,” Tetangco said.
Bangko Sentral Deputy Governor Diwa Guinigundo said the bank’s policy rate continued to provide guidance to market rates. He said as inflation rate was moving closer to the target and talks about the impending US Fed normalization remained, the trajectory even for interbank rates was moving towards the policy rate.
Inflation in the first 10 months averaged 1.6 percent, below the target range of 2 percent to 4 percent this year. Bangko Sentral officials earlier said inflation could move within the target range in 2017 and 2018.
Bangko Sentral adopted the interest rate corridor system in June so that through calibrated auctioning, the transmission of monetary policy would improve.
Bangko Sentral transformed the RRP facility into purely overnight facility, offered using a fixed-rate and full allotment method. Also, the special deposit account and RP facility were converted into overnight standing liquidity windows, available on demand during BSP business hours.
Bangko Sentral set the interest rates for the formal shift of its monetary operations to an interest rate corridor starting June 3.
The IRC system is expected to help improve monetary policy transmission and limit interest rate volatility.