TDF yields decline on dovish Fed bets amid easing inflation

Yields on the Bangko Sentral ng Pilipinas’ (BSP) term deposits went down on Wednesday, with investors betting on an extended tightening pause from the US Federal Reserve amid easing inflation.

The central bank’s term deposit facility (TDF) attracted bids amounting to PHP 267.009 billion on Wednesday, below the PHP 280 billion on the auction block as well as the PHP 337.806 billion seen a week ago for a PHP 350-billion offer.

Broken down, tenders for the seven-day papers reached PHP 147.124 billion, lower than the PHP 150 billion auctioned off by the central bank and the PHP 176.015 billion in bids for a PHP 190-billion offer seen the previous week.

Banks asked for yields ranging from 6.525% to 6.61%, wider than the 6.55% to 6.605% band seen a week ago. This caused the average rate of the one-week deposits to decline by 0.26 basis point (bp) to 6.5763% from 6.5789% previously.

Meanwhile, bids for the 14-day term deposits amounted to PHP 119.885 billion, lower than the PHP 130-billion offering and the PHP 161.791 billion in tenders for a PHP 160-billion offer seen on July 12.

Accepted rates were from 6.5250% to 6.63%, slightly higher than the 6.5% to 6.6288% margin recorded a week ago. With this, the average rate for the two-week deposits inched down by 0.43 bp to 6.5843% from the 6.5886% logged in the prior auction.

The BSP has not auctioned off 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.

TDF yields were lower following the continued easing in inflation in the US, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The Fed is widely expected to raise rates by 25 bps on July 26 but the odds of another Fed rate hike have been reduced significantly, thereby possibly nearing the end of the Fed’s tightening cycle,” Mr. Ricafort said.

“Thus, the local policy rates could follow/match future Fed rate moves (hike, pause, or eventually a possible cut in 2024) to maintain healthy interest rate differentials to help stabilize the peso and overall inflation,” he added.

The US consumer price index (CPI) rose by 0.2% last month after climbing by 0.1% in May.

In the 12 months through June, the CPI climbed by 3% after the 4% increase seen in May.

The Fed’s next policy meeting is on July 25-26. It raised its target interest rate by a total of 500 bps to a range between 5% and 5.25% before pausing its tightening cycle last month.

Meanwhile, Philippine headline inflation eased to 5.4% in June from 6.1% in May. It was the slowest in 14 months or since the 4.9% clip in April last year.

For the first six months, inflation averaged 7.2%, still well above the BSP’s  2-4% target for the year.

Easing inflation has prompted the Monetary Board to extend its policy pause for a second straight meeting last month, keeping the key interest rate at a near 16-year high of 6.25%.

The BSP will meet to discuss policy anew on August 17. — Keisha B. Ta-asan