Term deposit yields inch lower as BSP keeps hawkish policy stance

Yields on the central bank’s term deposits inched lower on Thursday amid weak demand after the Bangko Sentral ng Pilipinas (BSP) chief signaled a possible delay to the start of their monetary easing cycle due to lingering price risks.

The term deposit facility (TDF) of the BSP fetched bids amounting to PHP 219.989 billion on Thursday, well below the PHP 350-billion offering and the PHP 382.497 billion for a PHP 320-billion offer seen a week ago.

This week’s auction was moved to Thursday from the usual Wednesday schedule due to a regular holiday on April 10 in commemoration of the Feast of Ramadan. The TDF tenors offered were also adjusted due to the holiday.

Broken down, tenders for the six-day papers reached PHP 109.811 billion, lower than the PHP 200 billion on the auction block and the PHP 223.116 billion in bids for a PHP 180-billion offering of seven-day papers the previous week.

Banks asked for yields ranging from 6.5% to 6.555%, lower than the 6.53% to 6.5568% band seen a week ago. This caused the average rate of the one-week term deposits to decrease by 0.41 basis point (bp) to 6.5413% from 6.5454% previously.

Meanwhile, bids for the 13-day term deposits amounted to PHP 110.178 billion, below the PHP 150-billion offering as well as the PHP 159.381 billion in tenders for the PHP 140 billion in 14-day papers auctioned off a week earlier.

Accepted rates for the tenor were from 6.56% to 6.6%, wider than the 6.5545% to 6.6% margin seen a week ago. The average rate for the deposits declined by 0.71 bp to 6.5807% from 6.5878% logged in the prior auction.

The BSP has not auctioned 28-day term deposits for more than two years to give way to its weekly offerings of securities with the same tenor.

The term deposits and the 28-day bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates.

Term deposit yields went down after BSP Governor Eli M. Remolona, Jr. said the central bank could delay cutting rates amid persistent upside risks to inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP’s policy-setting Monetary Board kept the target reverse repurchase rate unchanged at a near 17-year high of 6.5% at its meeting on Monday, as expected by all 16 analysts in a BusinessWorld poll.

Rates on the central bank’s overnight deposit and lending facilities were likewise kept at 6% and 7%, respectively.

Mr. Remolona said at a briefing after the meeting that they could begin their policy easing cycle later than initially expected as they have become “more hawkish than before” due to persistent upside risks to inflation stemming from higher food and transport costs.

He said they could cut rates by 25 bps in the third quarter if inflation is within target and economic growth is weak.

However, policy easing could start as late as the first quarter of 2025 if inflation risks persist, he said.

The central bank hiked borrowing costs by 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

The consumer price index (CPI) accelerated to 3.7% year on year in March from 3.4% in February. This was slower than the 7.6% clip in the same month last year.

Still, this was within the BSP’s 3.4-4.2% forecast for the month and was slightly below the 3.8% median in a BusinessWorld poll. This also marked the fourth straight month that the CPI was within the central bank’s 2-4% target.

For the first quarter, headline inflation averaged 3.3%, below the BSP’s baseline forecast of 3.8% and risk-adjusted forecast of 4%. — Luisa Maria Jacinta C. Jocson