Term deposit yields decline on strong demand

Yields on the term deposits of the Bangko Sentral ng Pilipinas (BSP) went down on Wednesday on strong demand and as inflation is expected to return to the 2-4% target in the coming months.

The central bank’s term deposit facility (TDF) attracted bids amounting to PHP 443.4 billion on Wednesday, above the PHP 380-billion offering and the PHP 421.104 billion in tenders for the PHP 350-billion offer a week ago.

Broken down, tenders for the seven-day papers reached PHP 241.415 billion, higher than the PHP 210 billion auctioned off by the central bank and the PHP 231.567 billion in bids for a PHP 200-billion offer seen the previous week.

Banks asked for yields ranging from 6.4% to 6.469%, narrower than the 6.37% to 6.4895% band seen a week ago. This caused the average rate of the one-week deposits to inch down by 0.67 basis point (bp) to 6.4382% from 6.4449% previously.

Meanwhile, bids for the 14-day term deposits amounted to PHP 201.985 billion, higher than the PHP 170-billion offering and the PHP 189.537 billion in tenders for a PHP 150-billion offer on Sept. 27.

Accepted rates were from 6.4% to 6.475%, slightly tighter than the 6.39% to 6.4913% margin recorded a week ago. With this, the average rate for the two-week deposits declined by 1.06 bps to 6.4543% from 6.4649% logged in the prior auction.

The BSP has not auctioned off 28-day term deposits for almost 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 help guide market rates.

TDF yields eased for a fifth straight week amid higher demand, which reflects excess liquidity in the financial system, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The lower TDF yields also followed the recent decline in the yield on the overnight reverse repurchase (RRP) facility of the BSP, which stood at 6.143% on Oct. 4, lower than the target RRP rate of 6.25%, he noted.

Latest data from the central bank showed liquidity, as measured by M3, grew by 6.8% year on year to about PHP 16.5 trillion in August. This is faster than the 5.7% expansion in July.

Mr. Ricafort added that the temporary price cap for regular and well-milled rice, which was lifted on Wednesday, helped stabilize rice prices and overall inflation.

Thus, “headline inflation could still reach the BSP’s inflation target of 2-4% by the fourth quarter or the first quarter of 2024 on higher base effects… despite the recent higher prices of rice and oil,” he said.

Inflation may have quickened to 5.4% in September, a BusinessWorld poll of 17 analysts showed.

The Philippine Statistics Authority will release the September inflation data today (Oct. 5).

The central bank sees inflation returning within its 2-4% annual target by November. — K.B. Ta-asan