Term deposit yields end mixed as central bank keeps hawkish stance

Yields on the central bank’s term deposit facility were mixed on Wednesday after hawkish signals from the Bangko Sentral ng Pilipinas (BSP), even after it kept benchmark rates steady last week. 

Demand for the term deposit facility (TDF) of the BSP reached PHP 318.596 billion on Wednesday, surpassing the PHP 280-billion offer but a tad lower than the PHP 319.002 billion in bids for a PHP 300-billion offer at last week’s auction.

BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday that the term deposit facility saw stronger demand this week.

“The BSP reduced the volume offering in the TDF to PHP 280 billion, with the allocation between the 7-day and 14-day tenors recalibrated to PHP 160 billion (from PHP 170 billion) and PHP 120 billion (from PHP 130 billion), respectively,” he said.

“Both tenors were oversubscribed, with the respective bid-to-cover ratios for the 7-day and 14-day tenors at 1.121x and 1.160x,” he added.

Broken down, bids for the seven-day papers amounted to PHP 179.347 billion, higher than the PHP 160 billion auctioned off by the BSP as well as the PHP 179.011 billion in tenders for a PHP 170-billion offering logged in the previous auction.

Banks asked for yields ranging from 6.5780% to 6.6%, a wider band compared with the 6.57% to 6.61% seen a week ago. The average rate of the one-week term deposits inched down by 0.2 basis point (bp) to 6.5936% from 6.5956% previously.

Meanwhile, the 14-day term deposits attracted tenders amounting to PHP 139.249 billion, higher than the PHP 120-billion offer. However, it was below the PHP 139.991 billion in tenders for a PHP 130-billion offer seen on Aug. 16.

Accepted rates for the tenor ranged from 6.5780% to 6.61%, a slimmer margin versus the 6.55% to 6.62% last week. This caused the average rate of the two-week papers to inch up by 0.01 bp to 6.6% from 6.5998% in the prior auction.

“Looking ahead, the BSP’s monetary operations will continue to be guided by its assessment of prevailing liquidity conditions and market developments,” Mr. Dakila said.

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.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said TDF yields were mixed on Wednesday as central bank officials said they remain ready to pause or hike rates if needed.

The BSP also signaled no rate cuts for now as inflation is still not within the 2-4% target range, Mr. Ricafort said.

BSP Governor Eli M. Remolona, Jr. on Tuesday said the central bank’s stance remains hawkish and rate cuts are far off as inflation is still elevated.

The Monetary Board kept benchmark interest rates steady for a third straight meeting last week, but said it is prepared to resume tightening if needed amid risks to inflation.

The BSP left its overnight reverse repurchase rate unchanged at a near 16-year high of 6.25%. Interest rates on the overnight deposit and lending facilities were maintained at 5.75% and 6.75%, respectively.

The central bank raised borrowing costs by 425 bps from May 2022 to March 2023 to tame inflation.

The BSP will hold its next policy meeting on Sept. 21. — Keisha B. Ta-asan