Term deposit yields mixed amid hawkish signals from BSP chief

Yields on the central bank’s term deposits ended mixed on Wednesday amid hawkish signals from the Bangko Sentral ng Pilipinas (BSP) chief as they want to keep rates higher for longer to keep inflation expectations anchored. 

The BSP’s term deposit facility (TDF) fetched bids amounting to PHP 295.971 billion on Wednesday, below the PHP 300 billion on the auction block as well as the PHP 333.647 billion in tenders for a PHP 330-billion offer seen a week ago.

Broken down, tenders for the seven-day papers reached PHP 164.686 billion, lower than the PHP 180 billion auctioned off by the central bank and the PHP 194.346 billion in bids for a PHP 200-billion offering seen the previous week.

Banks asked for yields ranging from 6.62% to 6.75%, a slightly narrower margin than the 6.6% to 6.75% band seen a week ago. This caused the average rate of the one-week deposits to increase by 0.89 basis point (bp) to 6.6875% from 6.6786% previously.

Meanwhile, bids for the 14-day term deposits amounted to PHP 131.285 billion, higher than the PHP 120-billion offering but below the PHP 139.301 billion in tenders seen on Nov. 22 for the PHP 130 billion on the auction block.

Accepted rates for the tenor were from 6.6% to 6.735%, slimmer than the 6.6% to 6.768% margin seen a week ago. With this, the average rate for the two-week deposits slipped by 0.1 bp to 6.6886% from 6.6896% 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 BSP to mop up excess liquidity in the financial system and to better guide market rates.

TDF yields ended mixed on Wednesday amid hawkish signals from the BSP, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. on Friday said their policy stance will remain “hawkish for a while,” noting the Monetary Board could still resume tightening to keep inflation expectations anchored.

At its Nov. 16 meeting, the BSP kept its policy rate at a 16-year high of 6.5% amid easing inflation following an off-cycle hike of 25 bps last month.

The Monetary Board has raised borrowing costs by 450 bps since it began its tightening cycle in May 2022.

It will hold its last policy review for this year on Dec. 14.

Headline inflation dropped to a three-month low of 4.9% in October from 6.1% in September. This brought the 10-month average to 6.4%, still above the BSP’s 6% forecast and 2-4% target for the year.

Mr. Ricafort said a stronger peso exchange rate against the dollar and low global crude oil prices would help ease inflationary pressures, which could prompt the BSP to pause at next month’s meeting.

“Another positive factor is that the markets priced in Fed rate cuts by about 100 basis points in 2024 that could be matched locally,” he added. 

The US Federal Reserve kept its target rate unchanged at 5.25-5.5% at its Oct. 31-Nov. 1 meeting.

The US central bank has raised 525 bps from March 2022 to June 2023. — K.B. Ta-asan