Term deposit yields decline as inflation eases to 7-month low

Yields on the term deposits of the Bangko Sentral ng Pilipinas (BSP) declined on Wednesday following slower-than-expected headline inflation in August.

Demand for the central bank’s term deposit facility (TDF) amounted to PHP 218.169 billion on Wednesday, above the P200-billion offering. However, this was below the PHP 239.937 billion in bids for a PHP 220-billion offer last week.

Broken down, tenders for the seven-day papers reached PHP 132.746 billion, higher than the PHP 100 billion on the auction block. This was also above the PHP 127.29 billion in bids for a PHP 120-billion offering seen the previous week.

Banks asked for yields ranging from 6.23% to 6.3155%, a wider and lower band compared with the 6.2475% to 6.35% seen a week ago. With this, the average rate of the one-week term deposits went down by 0.66 basis point (bp) to 6.3028% from 6.3094% previously.

Meanwhile, the 14-day papers fetched bids amounting to PHP 85.423 billion, below the PHP 100-billion offer and the PHP 112.648 billion in tenders for the same volume auctioned off last week.

Accepted rates for the tenor were from 6.25% to 6.455%, lower than the 6.285% to 6.465% range seen last week. This caused the average rate of the two-week papers to inch down by 0.11 bp to 6.3776% from 6.3787% in the prior auction.

The central bank has not offered 28-day term deposits for nearly four years to give way to its weekly auctions of securities with the same tenor.

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

“BSP TDF average auction yields slightly eased week on week after the latest inflation data,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Ricafort said the lower inflation print could support further rate cuts from the BSP in the coming months, which would match the expected reductions by the US Federal Reserve.

Headline inflation eased to a seven-month low of 3.3% in August from 4.4% in July and 5.3% in the same month a year ago, the Philippine Statistics Authority reported last week. This was within the BSP’s 3.2-4% forecast for the month and was well below the 3.7% median estimate in a BusinessWorld poll of 15 analysts.

The Monetary Board on Aug. 15 reduced its policy rate by 25 bps to 6.25%, its first easing move in nearly four years. Prior to the cut, the BSP kept its policy rate at an over 17-year high of 6.5% for six straight meetings following cumulative hikes worth 450 bps between May 2022 and October 2023 to rein in inflation.

BSP Governor Eli M. Remolona, Jr. has said they could cut rates by another 25 bps within the year. The Monetary Board’s last two policy-setting meetings this year are on Oct. 17 and Dec. 19.

Meanwhile, the Fed is widely expected to begin its easing cycle at its Sept. 17-18 policy meeting, with markets pricing in a 25-bp cut at the review and 100 bps in reductions for this year. The US central bank has kept the federal fund target rate at 5.25%-5.5% range following increases worth 525 bps from March 2022 to July 2023. — B.M.D. Cruz