Term deposit yields climb ahead of Fed decision

YIELDS on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) rose on Wednesday, as the seven-day papers were undersubscribed ahead of the US Federal Reserve’s policy decision.

Total bids for the central bank’s term deposits reached PHP 277.823 billion, going above the PHP 270-billion offer for this week. However, this was lower than the PHP 327.374 billion in tenders seen last week for a PHP 320-billion offer.

Broken down, the seven-day papers fetched bids amounting to PHP 145.279 billion, lower than the PHP 150 billion auctioned off by the BSP as well as the PHP 173.577 billion in tenders logged in the previous auction, where the central bank offered PHP 120 billion.

Banks asked for yields ranging from 6.25% to 6.4375%, a narrower margin compared with the 6.2% to 6.43% band seen a week ago. This caused the average rate of the one-week papers to inch up by 4.08 basis points (bps) to 6.3445% from 6.3037%.

Meanwhile, demand for the 14-day term deposits amounted to PHP 132.544 billion, above the PHP 120 billion on the auction block but below the PHP 153.797 billion in tenders recorded a week ago for a PHP 140-billion offer.

Accepted rates for the papers were from 6.2% to 6.4175%, slimmer than the 6.175% to 6.4388% range seen on Jan. 25. With this, the average rate of the two-week deposit inched up by 0.53 bp to 6.351% from 6.3457% in the previous week’s auction.

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 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.

Yields on the BSP’s term deposits were higher ahead of the widely expected rate hike by the US Federal Reserve, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Ricafort said the BSP’s policy-setting Monetary Board could likely match the Fed’s move again at its own meeting this month.

The Fed was set to announce its policy decision overnight following its Jan. 31 to Feb. 1 meeting. Markets are betting on a 25-bp increase, smaller than the 50-bp hike in December 2022.

Investors also expected policy makers to give signals about the Fed’s policy path moving forward as recent data hinted at easing inflation and a slowing economy.

The US central bank raised borrowing costs by 425 bps last year, bringing the fed funds rate to 4.25-4.5%.

Meanwhile, BSP Governor Felipe M. Medalla last month said that the central bank is likely to raise benchmark rates by 25 or 50 bps at its meeting on Feb. 16 as it still needs to anchor inflation expectations.

Mr. Medalla also said the BSP will likely end its tightening cycle with one or two more increases this quarter, which will bring its key rate to around 6%.

The BSP hiked borrowing costs by 350 bps in 2022 to bring down rising prices, with its policy rate now at 5.5%. — Keisha B. Ta-asan