BSP’s TDF yields rise on hawkish central bank signals from around the world

The Philippines central bank’s term deposit yields rose at an auction on Wednesday as central banks around the world remained hawkish despite easing inflation.

Demand for the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) increased to P339.7 billion from P310 billion on the auction block. Last week, bids hit P257.394 billion against the same offer.

Tenders for the one-week term deposits hit P170.523 billion, above the P160-billion offer. It was also higher than last week, when bids hit P125.356 billion against the same offer.

Banks asked for yields ranging from 6.56% to 6.612%, narrower than 6.5% to 6.612% on Jan. 31. The average rate for the seven-day debt rose by 0.18 basis point (bp) to 6.5856%.

Meanwhile, the 14-day deposits attracted P169.153 billion in bids, higher than the P150 billion being sold by the central bank. Last week, tenders hit P132.038 billion against the same offer.

Accepted rates for the two-week debt ranged at 6.2% to 6.635% from 6.45% to 6.64% last week. This caused the tenor’s average rate to inch up by 0.21 bp to 6.6127%.

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

It uses term deposits and 28-day bills to mop up excess liquidity from the financial system and to better guide market rates.

TDF yields increased after US Federal Reserve Chairman Jerome H. Powell said a rate cut is unlikely in March, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

Last week, Mr. Powell reiterated that the Fed is unlikely to ease key rates at its meeting in March, dashing market expectations of rate cuts in the first quarter.

This was after the Fed kept interest rates steady for the fourth straight meeting last week. The target Fed fund rate is at 5.25-5.5%, after the US central bank hiked by 525 bps from March 2022 to July 2023.

TDF yields also rose after the BSP said it intends to keep its policy settings “sufficiently” tight until there is a sustained decline in inflation, Mr. Ricafort said.

Inflation slowed to 2.8% in January from 3.9% in December and 8.7% a year ago, the slowest since 2.3% in October 2020 amid a coronavirus pandemic.

January inflation was below the 3.1% median in a BusinessWorld poll last week and matched the low end of BSP’s 2.8-3.6% forecast.

“This inflation outturn is consistent with BSP expectations that inflation will likely moderate in the first quarter of 2024 due largely to negative base effects and some easing of supply constraints affecting key commodities,” the central bank said this week.

After increasing key rates by 350 bps in 2022, the Monetary Board tightened borrowing costs by another 100 bps in 2023 to tame inflation. This brought the key rate to a 16-year high of 6.5%.

“Looking ahead, the Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident,” the BSP earlier said.

It added that the board would consider the latest inflation and economic growth figures at its first policy meeting this year, set for Feb. 15.

“TDF auction yields were also slightly higher ahead of a possible large retail Treasury bond offering that could siphon off some excess liquidity from the financial system,” Mr. Ricafort said.

The government is looking at raising at least P30 billion from its first retail Treasury bond sale this year on Feb. 13. – Keisha B. Ta-asan, Reporter