Term deposit yields inch lower on easing signals

Yields on the Bangko Sentral ng Pilipinas’ (BSP) term deposits went down on Wednesday amid monetary easing signals from policy makers.

The central bank’s term deposit facility (TDF) attracted bids amounting to PHP 212.412 billion on Wednesday, above the PHP 180 billion on the auction block. However, this was below the PHP 240.791 billion in tenders seen a week ago against the PHP 310 billion on offer.

Broken down, tenders for the seven-day papers reached PHP 112.799 billion, higher than the PHP 90 billion auctioned off by the central bank but lower than the PHP 124.448 billion in bids for a PHP 150-billion offer last week.

Banks asked for yields ranging from 6.5% to 6.535%, lower and narrower compared with the 6.5125% to 6.55% band seen a week ago. This caused the average rate of the one-week deposits to decline by 1.13 basis points (bps) to 6.5244% from 6.5357% previously.

Meanwhile, bids for the 14-day term deposits amounted to PHP 99.613 billion, above the PHP 90-billion offer but below the PHP 116.343 billion in tenders against the PHP 160 billion placed on the auction block a week earlier.

Accepted rates were from 6.55% to 6.59%, slightly below the 6.5588% to 6.598% margin recorded a week ago. With this, the average rate for the two-week deposits inched lower by 0.55 bp to 6.5694% from the 6.5749% logged in the previous week’s auction.

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

TDF yields went down amid dovish policy signals from local monetary authorities, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Finance Secretary Ralph G. Recto, who sits on the BSP’s policy-setting Monetary Board, said that it was “highly probable” that the Philippine central bank would only start cutting rates after the Fed begins its own easing cycle.

The Federal Reserve held interest rates steady for a seventh straight meeting last week, with expectations of the start of rate cuts being pushed to as late as December. Fed officials are also now projecting only one rate cut this year versus previous expectations of three.

Meanwhile, BSP Monetary Board Member Benjamin E. Diokno told Bloomberg last week that the central bank has room to cut its benchmark rates at least twice this year with inflation still within its annual target.

Headline inflation accelerated to 3.9% year on year in May from 3.8% in April but marked the sixth straight month that inflation settled within the BSP’s 2-4% target band.

From January to May, the consumer price index averaged 3.5%, matching the BSP’s full-year forecast.

BSP Governor Eli M. Remolona, Jr. previously said the earliest the central bank can begin easing its policy stance is in August, adding they could cut rates by 25-50 bps in the second semester.

Mr. Remolona has also said the BSP does not need to wait for the Fed to begin its own easing cycle.

The Monetary Board has kept the benchmark rate at a 17-year high of 6.5% since October 2023 following cumulative hikes worth 450 bps to help tame red-hot inflation. — Luisa Maria Jacinta C. Jocson