Term deposit yields decline on BSP rate cut hints

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits went down on Wednesday, with investors betting on rate cuts this year amid easing inflation.

The central bank’s term deposit facility (TDF) attracted bids amounting to PHP 345.778 billion on Wednesday, below the PHP 360 billion on the auction block as well as the PHP 368.126 billion seen a week ago for a PHP 300-billion offer.

Broken down, tenders for the seven-day papers reached PHP 189 billion, a tad higher than the PHP 185 billion auctioned off by the central bank. However, this was below the PHP 203.117 billion in bids for a PHP 160-billion offer seen the previous week.

Banks asked for yields ranging from 6.5% to 6.615%, a wider and lower band compared with the 6.5525% to 6.6175% seen a week ago. This caused the average rate of the one-week deposits to decline by 1.06 basis points (bps) to 6.5877% from 6.5983% previously.

Meanwhile, bids for the 14-day term deposits amounted to PHP 156.778 billion, lower than the PHP 175-billion offering and the P165.009 billion in tenders for a PHP 140-billion offer on Jan. 3.

Accepted rates were at 6.5675% to 6.65%, narrower than the 6.5625% to 6.65% margin recorded a week ago. With this, the average rate for the two-week deposits inched down by 0.03 bp to 6.6200% from the 6.6203% logged in the prior auction.

The BSP has not auctioned off 28-day term deposits for more than three 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 central bank to mop up excess liquidity in the financial system and to better guide market rates.

TDF yields went down following signals of possible cuts in borrowing costs after inflation eased to a 20-month low in December, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Finance Secretary and Monetary Board member Benjamin E. Diokno on Monday said the BSP could cut borrowing costs by as much as 100 bps this year and mirror the future policy moves of the US Federal Reserve.

“So, a 75-basis-point cut by the Fed this year could actually be matched by the central bank. Or even 100 bps. Right now, the policy rate is at 6.5%, so I see something like 5.5% by the end of 2024,” Mr. Diokno said in an interview with Bloomberg TV. 

The BSP kept its policy rate steady at a 16-year high of 6.5% at its December meeting. This was after the Monetary Board tightened rates by 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

Preliminary data released by the Philippine Statistics Authority on Friday showed headline inflation slowed to 3.9% in December from 4.1% in November and 8.1% a year ago.

This is the first time inflation hit the 2-4% target in nearly two years and was the slowest reading in 22 months or since 3% in February 2022.

However, the 2023 inflation average stood at a 14-year high of 6%. This was above the 5.8% in 2022 and marked the second straight year that average inflation breached the BSP’s 2-4% target.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board is not considering any rate cuts in the coming months or until inflation is firmly within their 2-4% goal.

The BSP will have its first policy review for this year on Feb. 15. — Keisha B. Ta-asan