TDF yields rise on BSP rate hike

YIELDS on term deposit climbed on Wednesday as both tenors on offer were oversubscribed, after the Bangko Sentral ng Pilipinas’ (BSP) policy meeting last week.

Total bids for the central bank’s term deposit facility (TDF) reached PHP 326.384 billion, above the PHP 260-billion offer but below the PHP 341.947 billion in tenders for a PHP 360 billion offering last week.

“The BSP offered a lower volume in the TDF auction at PHP 260 billion from PHP 360 billion last week and allocated PHP 150 billion (from PHP 200 billion) and PHP 110 billion (from PHP 160 billion) to the 7-day and 14-day tenors, respectively,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.

“Both tenors were oversubscribed with bid-to-cover ratios at 1.20x and 1.34x the respective volume offerings in the 7-day and 14-day TDF,” he added.

Broken down, the seven-day papers fetched bids amounting to PHP 179.272 billion, higher than the PHP 150 billion auctioned off by the central bank. However, this fell behind the PHP 182.994 billion in tenders logged in the previous auction for a PHP 220-billion offer.

Banks asked for yields ranging from 6% to 6.35%, a narrower margin compared with the 5.85% to 6.385% band seen a week ago. This caused the average rate of the one-week papers to rise by 10.71 basis points (bps) to 6.2466% from 6.1395%.

Meanwhile, demand for the 14-day term deposits amounted to PHP 147.112 billion, higher than the PHP 110-billion offering, but lower than the PHP 158.953 billion in tenders for a PHP 160-billion offering on Dec. 14.

Accepted yields were seen from 6% to 6.4875%, a slimmer band compared with 5.875% to 6.55% logged the previous week. This brought the average rate of the two-week deposits to 6.3323%, inching up by 8.52 bps from the 6.2471% logged a week ago.

The central bank has not auctioned off 28-day term deposits for more than a year to give way to its weekly offering of securities with the same tenor.

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

“The results of the TDF auction reflect the partial pass-through of the BSP policy rate hike last week amid ample liquidity in the financial system. Looking ahead, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments,” Mr. Dakila said.

Yields on the term deposit facility were higher again this week after the latest policy rate hike of the central bank, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.

The BSP raised its benchmark interest rate to its highest in 14 years and has signaled more tightening albeit at a slower pace next year.

The Monetary Board increased its overnight borrowing rate by 50 basis points (bps) to 5.5%, bringing the policy rate to its highest since November 2008, at 6%.

The move followed the 50-bp hike by the US Federal Reserve at its Dec. 13-14 meeting, which brought its key rate to 4.25-4.5%.

The BSP’s rates on the overnight deposit and lending facilities were also increased to 5% and 6%, respectively.

Since May, the central bank has increased borrowing costs by a cumulative 350 bps to tame inflation.

Headline inflation accelerated to a 14-year high of 8% in November, from 7.7% in October. For the January-to-November period, inflation averaged 5.6%. This is still below the 5.8% full-year forecast of the BSP, but way above its 2-4% target.

TDF yields were also higher after recent signals of more rate hikes next year, Mr. Ricafort said.

BSP Governor Felipe M. Medalla said a pause in monetary tightening next year has a low possibility of happening, and that the Monetary Board may have to raise borrowing costs at its first two meetings in 2023.

“Our goal is to have inflation between 2-4%, preferably closer to 3% than to 4% by the third quarter of next year, and then the fourth quarter until 2024 will also be like that. That’s our goal,” Mr. Medalla said.

He also said the BSP may consider smaller rate hikes next year, noting there is a higher chance of 25-bp or 50-bp rate increases at its next two policy meetings.

The schedule of the MB meetings for 2023 has yet to be released. — Keisha B. Ta-asan