By Lee C. Chipongian

The average yields for this week’s term deposit facility (TDF) auction went up ahead of the Bangko Sentral ng Pilipinas’ (BSP) monetary policy stance meeting today (Thursday) which the market expects will raise interest rates by another 25-50 basis points to reverse high inflation and temper exchange rate volatility.

This week’s auction size of P60 billion was also lower than last Wednesday’s P70 billion. Total tenders amounted to P65.85 billion. Banks were more interested in the shorter-dated TDFs, driving up prices based on the bids.

The TDF, a liquidity absorption facility, has had a volume as high as P180 billion during its first year of implementation. But with the BSP’s tightening policy this year, liquidity forecasts show lower excess liquidity to mop up every week. Funds were being used for lending, to buy US dollars for bank clients, and for the repayments of loans.

During Wednesday’s TDF auction, the 7 days had strong demand with P51.63 billion worth of tenders against offer of P40 billion. Its average rate increased to 4.4215 percent from 4.3884 percent last week.

The 14-days TDF attracted bids of P9.64 billion against a reduced offer of P10 billion compared to P20 billion last week. Yields went up to 4.4722 percent from 4.4339 percent last Wednesday.

The longest-dated tenor or 28-days, still offered at P10 billion since September 19, received tenders amounting to P4.58 billion. Average rate rose to 4.4877 percent from 4.4754 percent.

The BSP has been encouraging market rates to adjust closer to the benchmark rate. Following the most recent rate hike of 50 bps last August 9, the overnight reverse repurchase rate is now at four percent.