Yields on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) rose on Wednesday amid hawkish signals from the Philippine central bank and ahead of the US Federal Reserve’s policy decision.
Total bids for the central bank’s term deposits reached PHP 258.591 billion, slightly above the PHP 230-billion offer for this week. This is lower than the PHP 267.009 billion in tenders seen last week for a PHP 280-billion offer.
Broken down, the seven-day papers fetched bids amounting to PHP 135.05 billion, a tad higher than the PHP 130 billion auctioned off by the BSP. However, this is lower than the PHP 147.124 billion in tenders logged in the previous auction, where the central bank offered PHP 150 billion.
Banks asked for yields ranging from 6.55% to 6.6075%, a narrower margin compared with the 6.525% to 6.61% band seen a week ago. This caused the average rate of the one-week papers to rise by 0.43 basis point (bp) to 6.5806% from 6.5763% a week prior.
Meanwhile, demand for the 14-day term deposits amounted to PHP 123.541 billion, higher than the PHP 100-billion offer and the PHP 119.885 billion in tenders recorded a week ago for PHP 130 billion on the auction block.
Accepted rates for the papers were from 6.5% to 6.609%, a lower margin compared with the 6.525% to 6.63% range seen on July 19. With this, the average rate of the two-week deposits inched up by 0.21 bp to 6.5864% from the 6.5843% 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 climbed amid hawkish signals from the BSP and ahead of the widely expected rate hike from the Fed, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
BSP Deputy Governor Francisco G. Dakila, Jr. on Tuesday said the central bank is prepared to resume its policy tightening if needed as it monitors the inflation outlook and domestic demand in the country.
The Monetary Board hiked borrowing costs by a total of 425 bps from May 2022 to March 2023, bringing the key interest rate to 6.25%. It paused its tightening for two straight meetings in May and June.
BSP Governor Eli M. Remolona also said inflation remains to be a challenge, but they expect it will be within their 2-4% target by the fourth quarter of 2023.
“Fortunately, the BSP’s inflation-targeting framework has served us well in the face of unusual supply shocks. We continue to focus on our mandate of price stability and have dedicated our resources and attention in pursuit of this goal,” Mr. Remolona said.
Philippine inflation slowed to a 14-month low of 5.4% in June. However, this is still above the BSP’s 2-4% target range for the 15th consecutive month. For the first six months of the year, headline inflation stood at 7.2%.
Meanwhile, the Fed is widely expected to raise rates by 25 bps this week after pausing in June following cumulative hikes worth 500 bps that brought its target interest rate to 5-5.25%.
Mr. Dakila said the BSP expects the Fed to fire off two more increases in interest rates this year before pausing, which they will also consider in their next policy meeting on Aug. 17. — Keisha B. Ta-asan
This article originally appeared on bworldonline.com