Term deposit yields mixed on slower inflation

YIELDS on the central bank’s term deposits were mixed on Wednesday due to weak demand amid easing inflation and expectations of a pause in policy tightening.

Total bids for the term deposits of the Bangko Sentral ng Pilipinas (BSP) reached PHP 227.758 billion on Wednesday, lower than the PHP 260-billion offer as well as the PHP 319.649 billion in tenders last week for a PHP 330-billion offering.

Broken down, the seven-day papers fetched bids amounting to PHP 138.846 billion, below the PHP 160 billion auctioned off by the BSP and the PHP 187.453 billion in bids for a PHP 190-billion offer a week ago.

Accepted rates were from 6.53% to 6.64%, inching up from the 6.4995% to 6.63% margin in the prior auction. This caused the average rate of the one-week papers to inch down by 0.07 basis point (bp) to 6.5882% from 6.5952% previously.

Meanwhile, tenders for the 14-day deposits amounted to PHP 88.912 billion, less than the PHP 100 billion offered by the BSP and lower than the PHP 132.196 billion seen the previous week for a PHP 140-billion offering.

Banks asked for yields ranging from 6.4995% to 6.67%, slightly wider than the 6.4995% to 6.65% margin seen on May 3. With this, the average rate of the two-week deposits edged higher by 0.07 bp to 6.6166% from 6.6159% in the previous week’s auction.

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 deposit facility (TDF) 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.

The average yields on the term deposits were mixed following the release of April inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Headline inflation eased to 6.6% in April, the slowest in eight months or since the 6.3% print in August 2022, the Philippine Statistics Authority reported on Friday.

This was below the 7.6% print in March and the 7% median estimate in a BusinessWorld poll and was within the Bangko Sentral ng Pilipinas’ (BSP) 6.3-7.1% forecast range for the month.

For the first four months, inflation averaged at 7.9%, well above the BSP’s 2-4% target and 6% forecast for the year.

Following slower April inflation, Mr. Ricafort said market players now expect the Philippine central bank to pause monetary policy tightening as prices are expected to cool further in the coming months. 

The BSP has raised borrowing costs by 425 bps since May last year to curb elevated inflation, bringing the key policy rate to 6.25% — the highest since 2007.

BSP Governor Felipe M. Medalla earlier said that if inflation slowed further in April, the Monetary Board may consider keeping policy rates on hold at its next meeting on May 18.

He also said inflation may return within the 2-4% target by fourth quarter of this year.

Mr. Ricafort added that markets also expect a pause in the US Federal Reserve’s rate hikes.

Fed Chair Jerome H. Powell last week left the door open to a pause in its tightening cycle amid signs of an economic slowdown.

The Fed last week raised borrowing costs by 25 bps to a range between 5% and 5.25%.

Since March 2022, the US central bank has raised rates by a total of 500 bps — By Keisha B. Ta-asan