Yields on the Bangko Sentral ng Pilipinas’ (BSP) term deposits dropped on Wednesday following less hawkish signals from central banks.
Demand for the BSP’s term deposit facility (TDF) amounted to PHP 375.538 billion on Wednesday, below the PHP 400-billion offer as well as the PHP 443.4 billion in tenders seen a week earlier for a PHP 380-billion offering.
Broken down, the seven-day term deposits fetched bids amounting to PHP 218.879 billion, short of the PHP 220 billion auctioned off by the BSP. It was also lower than the PHP 241.415 billion in tenders logged the previous week for a PHP 210-billion offer.
Accepted rates for the tenor ranged from 6.4% to 6.465%, a tad narrower than the 6.4% to 6.469% band logged a week ago. This caused the average rate of the one-week deposits to slip by 0.7 basis point (bp) to 6.4312% from 6.4382% previously.
Meanwhile, demand for the two-week deposits amounted to PHP 156.659 billion, below the PHP 180-billion offer and the PHP 201.985 billion seen in the previous auction.
Banks asked for yields from 6.4% to 6.478%, a tad higher than the 6.4% to 6.475% range seen last week. This caused the average rate of the paper to dip by 0.85 bp to 6.4458% from the 6.4543% quoted on Oct. 4.
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.
“The TDF auction yields were marginally lower week on week, partly due to reduced hawkish signals from the BSP and monetary officials recently,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Mr. Ricafort said some officials from the US Federal Reserve have signaled a possible pause in monetary tightening, while the BSP chief said the Monetary Board may fire off a 25-bp rate hike in their November meeting, a tad less hawkish than his earlier hints about an off-cycle increase being on the table.
BSP Governor Eli M. Remolona, Jr. on Wednesday said the Monetary Board is open to hike borrowing costs by 25 bps on their Nov. 16 review following the release of data showing faster-than-expected September inflation.
Headline inflation accelerated for a second straight month to 6.1% in September from 5.3% in August. This brought the nine-month inflation average to 6.6%, still higher than the BSP’s 5.8% forecast and 2-4% target.
The Monetary Board has kept the benchmark interest rate at 6.25% for four straight meetings after it hiked borrowing costs by 425 bps from May 2022 to March 2023 to help tame inflation.
“The Israel-Hamas war led to some fund shifts to the safest assets such as US or local government bonds, as is the tendency whenever there are geopolitical uncertainties or risks,” Mr. Ricafort said. — K.B. Ta-asan