Term deposit yields mixed ahead of BSP decision

YIELDS on the central bank’s term deposits ended mixed on Wednesday ahead of the Monetary Board’s policy meeting.

The term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) fetched bids amounting to PHP 240.063 billion on Wednesday, above the PHP 230 billion on the auction block as well as the PHP 227.758 billion in tenders for a PHP 260-billion offer seen a week ago.

Broken down, tenders for the seven-day papers reached PHP 140.537 billion, a tad higher than the PHP 140 billion auctioned off by the central bank and the PHP 138.846 billion in bids for a PHP 160-billion offering seen the previous week.

Banks asked for yields ranging from 6.525% to 6.645%, slightly wider than the 6.53% to 6.64% band seen a week ago. This caused the average rate of the one-week deposits to increase by 0.8 basis points (bp) to 6.5962% from 6.5882% previously.

Meanwhile, bids for the 14-day term deposits amounted to P99.526 billion, higher than the P90-billion offering and the P88.912 billion in tenders seen on May 10 for the P100 billion on the auction block.

Accepted rates for the tenor were from 6.199% to 6.655%, lower than the 6.4995% to 6.67% margin seen a week ago. With this, the average rate for the two-week deposits slipped by 0.16 bp to 6.615% from 6.6166% logged in the prior auction.

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

Term deposit yields were mixed following strong signals of a possible pause in rate hikes at the BSP’s policy meeting on Thursday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The central bank is likely to keep policy rates unchanged as inflation continues to ease, BSP Governor Felipe M. Medalla earlier said.

“If you’re sure this is a permanent trend, clearly, we must pause. Because there will be no need for another [rate hike],” Mr. Medalla said.

A BusinessWorld poll last week showed 13 out of 18 analysts expect the Monetary Board to pause its tightening cycle at its meeting on Thursday.

If realized, this would be the first time the BSP will leave interest rates untouched since it began hiking in May 2022.

The Monetary Board has raised borrowing costs by 425 bps since May 2022 to help tame elevated inflation, with its key rate now at 6.25%.

After peaking at 8.7% in January, headline inflation has since eased to an eight-month low of 6.6% in April.

For the first four months of the year, the consumer price index averaged 7.9%. This is still above the BSP’s 6% full-year forecast and 2-4% target range.

The BSP chief also said they could reduce banks’ reserve requirement ratio (RRR) as an alternative to loosening monetary policy.

“We must have other ways of loosening monetary conditions even if we cannot cut rates. The easiest thing to do is to cut back the reserve requirements,” Mr. Medalla said.

A cut in banks’ reserve requirements is a move intended to be an operational adjustment to facilitate the BSP’s shift to market-based instruments for managing liquidity in the financial system, particularly the term deposit facility and the BSP securities.

The BSP earlier committed to bringing down the ratio for big banks to single digits by this year. The ratio for big banks is 12%, one of the highest in the region.

Reserve requirements for thrift and rural lenders are 3% and 2%, respectively. — K.B. Ta-asan