Don’t link RRR cuts to TDF bids: BSP chief

This was stressed by BSP Governor Benjamin Diokno Tuesday when asked for his reaction to the undersubscription of the central bank’s Term Deposit Facility (TDF). (File Photo: Bangko Sentral ng Pilipinas/Facebook)

MANILA — Increase in domestic liquidity as a result of the cut in banks’ reserve requirement ratio (RRR) should not be the gauge for tenders in the Bangko Sentral ng Pilipinas’ (BSP) term facility.

This was stressed by BSP Governor Benjamin Diokno Tuesday when asked for his reaction to the undersubscription of the central bank’s Term Deposit Facility (TDF).

“That is not the measure of liquidity. It means they are putting money elsewhere. Maybe they are investing it in stocks or they are really lending it,” he said.

The BSP’s policy-making Monetary Board (MB) has decided for staggered cuts in banks’ RRR this year.

Specifically, these will be at 100 basis points effective May 31, and 50 basis points effective June 28 and July 26 for universal and commercial banks (U/KBs), thrift banks (TBs), and non-bank financial institutions with quasi-banking functions (NBQBs).

Rural banks (RBs) and cooperative banks’ (Coop banks) demand deposits and negotiable order of withdrawal (NOW) accounts was slashed by 100 basis points effective May 31, 2019.

These cuts are expected to release at least PHP180 billion worth of liquidity into the economy.

Diokno said these cuts were announced three months ahead of the full implementation, thus, banks have ample leeway to plan where to place the additional funds.

During the TDF auction last June 13, both the 13-day and 27-day facility were undersubscribed.

The BSP offered the 13-day TDF for PHP10 billion but it only received PHP7.418 billion worth of bids.

Bids for the 27-day facility reached PHP6.774 billion, lower than the PHP10-billion offer.

Only the six-day facility received bids that are higher than the PHP10-billion offer after tenders reached PHP10.77 billion.