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BusinessWorld 3 MIN READ

TDF yields drop before Fed, BSP policy decisions

September 21, 2023By BusinessWorld
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Yields on the central bank’s term deposits dropped on Wednesday as both tenors were oversubscribed on expectations of a rate pause this week.

The term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) fetched bids amounting to PHP 434.066 billion on Wednesday, well above the PHP 300-billion offering but a tad lower than PHP 446.698 billion for a PHP 340-billion offer seen a week ago.

Broken down, tenders for the seven-day papers reached PHP 263.423 billion, higher than the PHP 180 billion auctioned off by the central bank and the PHP 248.137 billion in bids for a PHP 200-billion offering seen the previous week.

Banks asked for yields ranging from 6.3% to 6.515%, lower than the 6.33% to 6.575% band seen a week ago. This caused the average rate of the one-week deposits to decrease by 6.15 basis points (bps) to 6.4576% from 6.5191% previously.

Meanwhile, bids for the 14-day term deposits amounted to PHP 170.643 billion, beyond the PHP 120-billion offering but failing to beat the PHP 198.561 billion in tenders for a PHP 140-billion offer seen on Sept. 13.

Accepted rates for the tenor were from 6.3275% to 6.525%, also lower than the 6.34% to 6.58% margin seen a week ago. With this, the average rate for the two-week deposits fell by 3.64 bps to 6.4863% from 6.5227% logged in the prior auction.

The BSP bank 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 BSP to mop up excess liquidity in the financial system and to better guide market rates.

Term deposit yields went down ahead of the widely expected pause from both the US Federal Reserve and the BSP at their meetings this week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US Federal Reserve was set to announce overnight its policy decision after a two-day meeting.

The Fed hiked borrowing costs by 25 bps at its July meeting, bringing its target rate to 5.25-5.5%, the highest level in 22 years.

Meanwhile, the Monetary Board will hold its own review on Thursday, where it is likely to keep rates steady for a fourth straight meeting, according to 14 of 17 analysts in a BusinessWorld poll last week.

Mr. Ricafort said headline inflation could fall within the 2-4% target by the fourth quarter or in the first quarter of 2024 due to a high base, which would be a key factor in the BSP’s decision making.

The country’s headline inflation rose to 5.3% in August from 4.7% in July. It marked the 17th straight month inflation breached the central bank’s 2-4% target.

For the first eight months, inflation averaged 6.6%, still above the BSP’s 5.6% forecast. — K.B. Ta-asan

This article originally appeared on bworldonline.com

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