Philippine Central Bank Considers 56-Day Tenor for Term Deposits

  • BSP to initially offer 7-day, 28-day tenors, Guinigundo says
  • Term deposit auction size can be small at first, paper says

The Philippines asked lenders if they are willing to deposit funds with the central bank for as long as 56 days as policy makers seek greater control over liquidity conditions, according to a copy of a consultation paper obtained by Bloomberg News.

Bangko Sentral ng Pilipinas will initially offer 7-day and 28-day tenors for the term deposits, without allowing for early redemption, according to the consultation paper circulated to commercial banks in October. Deputy Governor Diwa Guinigundo confirmed in an e-mail Tuesday that the BSP would offer the shorter tenors but wouldn’t confirm that BSP is looking at the 56-day offer. Final tenors are still to be decided and the central bank is open to discussion, he said in the e-mail.

"Longer-term placements of banks keep liquidity longer with BSP and give flexibility for short-term calibration of liquidity in the market," Guinigundo said in the e-mailed response to questions.

The new deposits are part of a shift by Bangko Sentral to an interest-rate corridor by the second quarter next year to boost potency of its benchmark rate in guiding the market, Governor Amando Tetangco said in September. The central bank wants to steer market interest rates towards the policy rate by using a range of instruments to manage liquidity, according to the paper.

The size of auctions for the term deposits can be small at first, although in principle, larger and more frequent operations can be undertaken depending on market needs, according to the paper.

Other points made in the consultation paper include:

  • Foreign funds to be prohibited from investing in term deposits
  • Early redemption for longer-term tenors (maturity of 28 days and longer) could be explored to provide banks with more options for short-term liquidity management, and to boost demand for longer-term deposits
  • Central bank to implement interest-rate corridor reforms gradually to prevent liquidity tightness
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