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