Yields on BSP’s term deposit facility rise

YIELDS on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) continued to rise on Wednesday ahead of the Monetary Board’s and the US Federal Reserve’s policy-setting meetings this week.

Total bids for the central bank’s term deposits reached PHP 282.8 billion, slightly above the PHP 280-billion offer for this week. This is lower than the PHP 344.195 billion in tenders seen last week for a PHP 340-billion offer.

Broken down, the seven-day papers fetched bids amounting to PHP 168.448 billion, below the PHP 180 billion auctioned off by the BSP and the PHP 210.861 billion in tenders logged in the previous auction, where the central bank offered PHP 220 billion.

Banks asked for yields ranging from 6.49% to 6.77%, a higher margin compared to the 5.5% to 6.7% band seen a week ago. This caused the average rate of the one-week papers to rise by 6.15 basis points (bps) to 6.6152% from 6.5537% a week prior.

Meanwhile, demand for the 14-day term deposits amounted to PHP 114.352 billion, higher than the PHP 100-billion offering. However, this was lower than the PHP 133.334 billion in tenders recorded a week ago for a PHP 120-billion offer.

Accepted rates for the papers were from 6% to 6.6994%, a narrower margin compared with the 5.6% to 6.7% range seen on March 15. With this, the average rate of the two-week deposits inched up by 3.33 bps to 6.639% from the 6.6057% fetched 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 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.

Yields on the term deposits were higher ahead of widely expected rate hikes from both the Fed and the BSP this week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“BSP TDF auction yields were again mostly slightly higher week on week… amid higher market expectations of another 25-bp Fed rate hike on March 22, 2023 that would be matched locally on the following day to maintain comfortable interest rate differentials to help stabilize the peso and overall inflation,” Mr. Ricafort said.

The Fed will hold its second policy meeting for the year on March 21-22. Markets are pricing in an increase of 25 bps following the failures of Silicon Valley Bank and Signature Bank.

The US central bank hiked its target interest rate by 25 bps at its January 31 to February 1 meeting to a range between 4.5% and 4.75%.

Since March 2022, the Fed has raised rates by a total of 450 bps.

Meanwhile, the BSP’s policy-setting Monetary Board will meet on March 23.

A BusinessWorld poll held last week showed 12 out of 14 analysts see the Monetary Board hiking rates by 25 bps on Thursday amid concerns over elevated inflation and the fallout from bank failures in the United States.   

The BSP last month raised benchmark interest rates by 50 bps for a second straight meeting, bringing its policy rate to 6%.

It has increased borrowing costs by 400 bps since May 2022 as it seeks to bring down elevated inflation.

Headline inflation eased to 8.6% in February from 8.7% in January, latest data showed. It was the 11^th consecutive month that inflation exceeded the BSP’s 2-4% target for the year.

For the first two months of the year, headline inflation averaged 8.6%, above the central bank’s 6.1% forecast for the year. — Keisha B. Ta-asan