Term deposit yields climb after BSP rate hike, hawkish signals

YIELDS on term deposits rose on Wednesday as both tenors were oversubscribed after the Bangko Sentral ng Pilipinas (BSP) hiked borrowing costs during their policy meeting last week.

Total bids for the central bank’s term deposit facility (TDF) reached PHP 324.786 billion, above the PHP 280 billion on the auction block, but lower than the PHP 431.937 billion in tenders for a PHP 330-billion offering a week ago.

“The BSP lowered the volume offering for the TDF auction to PHP 280 billion (from P330 billion),” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.

“Based on actual bids received last week, the total offer volume was reallocated between the 7-day and 14-day tenors at PHP 150 billion (from P190 billion) and PHP 130 billion (from P140 billion), respectively. Both tenors were oversubscribed, with the respective bid-to-cover ratios for the 7-day and 14-day TDF at 1.066x and 1.269x,” he said.

Broken down, the seven-day papers fetched bids amounting to PHP 159.827 billion, higher than the PHP 150 billion auctioned off by the central bank. However, this was below the PHP 309.542 billion in tenders logged in the previous auction for a PHP 190-billion offer.

Banks asked for yields ranging from 6.25% to 6.55%, a wider margin compared with the 6.25% to 6.378% band seen a week ago. This caused the average rate of the one-week papers to rise by 3.27 basis points (bps) to 6.3886% from 6.3559%.

Meanwhile, demand for the 14-day term deposits amounted to PHP 164.959 billion, higher than the PHP 130 billion on the auction block as well as the PHP 122.395 billion in tenders for a PHP 140-billion offering seen on Feb. 15.

Accepted yields were from 6.25% to 6.4944%, slightly wider than the 6.2508% to 6.48% band logged the previous week. This brought the average rate of the two-week deposit to 6.418%, up by 3.78 bps from the 6.3802% logged a week ago.

The central bank has not auctioned off 28-day term deposits for more than two years 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 reflected strong demand for both tenors following the BSP’s decision last Feb. 16 to raise its key policy rate by 50 bps. Moving forward, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments,” Mr. Dakila said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message that TDF yields were higher again this week following the BSP’s decision to hike borrowing costs anew and signals of further increases this year.

The BSP last week hiked benchmark rates by 50 bps for a second straight meeting, and hinted at further tightening to help bring down elevated inflation.

The latest move brought the central bank’s policy rate to 6%, the highest in nearly 16 years or since May 2007 when it stood at 7.5%.

It has now raised borrowing costs by 400 bps since May 2022.

BSP Governor Felipe M. Medalla last week said that a third or fourth rate hike is likely this year, adding that they could consider a 25-bp or 50-bp increase at their March 23 review, to help bring inflation back within their 2-4% target by the end of the year.

The BSP sees inflation averaging 6.1% this year before easing to 3.1% in 2024.

Headline inflation soared to a 14-year high of 8.7% in January, faster than 8.1% in December 2022. — K.B. Ta-asan