Term deposit yields inch lower on Fed, BSP bets

Yields on the Bangko Sentral ng Pilipinas’ (BSP) term deposits went down on Wednesday, with market players betting that both the US Federal Reserve and the Monetary Board will keep rates steady amid easing inflation concerns.

The central bank’s term deposit facility (TDF) attracted bids amounting to PHP 391.323 billion on Wednesday, above the PHP 270 billion on the auction block as well as the PHP 336.436 billion seen a week ago for a PHP 290-billion offer.

Broken down, tenders for the seven-day papers reached PHP 215.640 billion, higher than the PHP 140 billion auctioned off by the central bank and the PHP 178.186 billion in bids for a PHP 160-billion offer seen the previous week.

Banks asked for yields ranging from 6.59% to 6.6875%, narrower than the 6.5% to 6.72% band seen a week ago. This caused the average rate of the one-week deposits to decline by 3 basis points (bps) to 6.6627% from 6.6927% pre-viously.

Meanwhile, bids for the 14-day term deposits amounted to PHp 175.683 billion, higher than the P130-billion offering and the P158.250 billion in tenders for the same offer seen on Dec. 6.

Accepted rates were from 6.60% to 6.6975%, lower than the 6.655% to 6.71% margin recorded a week ago. With this, the average rate for the two-week deposits inched down by 1.36 bps to 6.6756% from the 6.6892% logged in the prior auction.

The BSP has not auctioned off 28-day term deposits for 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 on Wednesday amid expectations of a continued pause in tightening in the US and the Philippines this week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A BusinessWorld poll last week showed 15 out of 17 analysts expect the Monetary Board to hold the target reverse repurchase rate steady at 6.5% for a second straight meeting on Thursday, which will be the BSP’s last policy review for the year.

Philippine headline inflation eased to 4.1% in November from 4.9% in October and 8% in November 2022.

For the first 11 months, the consumer price index (CPI) averaged 6.2%, faster than 5.6% in the same period a year ago. This is still above the BSP’s baseline forecast of 6% and 2-4% target for 2023.

Meanwhile, market players are betting on policy easing from the Fed in 2024, pricing in at least 100 bps in rate cuts that could be matched locally, Mr. Ricafort added.

The Fed was expected to keep its target rate unchanged at 5.25-5.5% for a third straight meeting this week. The decision was scheduled to be announced at the end of their two-day meeting overnight.

The US central bank has raised borrowing costs by 525 bps since March 2022.

TDF yields corrected lower on Wednesday as global crude oil prices declined to USD 68 per barrel levels, the lowest in more than five months, Mr. Ricafort said.

This would help support the downward trend in inflation in the US and in the Philippines, he said.

In the US, the CPI edged up 0.1% last month after being unchanged in October, the Labor department’s Bureau of Labor Statistics said.

In the 12 months through November, the CPI increased 3.1% after rising 3.2% in October. — Keisha B. Ta-asan