Yields on term deposits mixed on BSP, Fed bets and May CPI

Yields on the central bank’s term deposits were mixed on Wednesday as inflation eased in May and as market players expect both the US and the Philippine central banks to keep their benchmark rates on hold this month.

Total bids for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) reached PHP 249.767 billion on Wednesday, above the PHP 220-billion offer and the PHP 221.806 billion in tenders last week.

Broken down, the seven-day papers fetched bids amounting to PHP 133.675 billion, going beyond the PHP 120 billion auctioned off by the BSP and the PHP 123.506 billion in bids for the same offer volume a week ago.

Accepted rates were from 6.375% to 6.625%, a narrower margin than the 6.3% to 6.64% in the prior auction. This caused the average rate of the one-week papers to decline by 0.4 basis point (bp) to 6.5823% from 6.5863% previously.

Meanwhile, tenders for the 14-day deposits amounted to PHP 116.092 billion, above the P100 billion auctioned off by the BSP and the PHP 98.300 billion seen the previous week.

Banks asked for yields ranging from 6.3% to 6.6344%, also narrower than the 6.25% to 6.651% band seen on May 31. With this, the average rate of the two-week deposits rose by 0.75 bp to 6.5927% from 6.5852% in the prior 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 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 after inflation eased to its lowest level in a year in May, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Headline inflation eased for a fourth straight month to 6.1% in May from 6.6% in April amid lower transport and food costs, preliminary data from the Philippine Statistics Authority showed.

The May consumer price index (CPI) matched the 6.1% median in a BusinessWorld poll conducted last week and was within the 5.8-6.6% forecast of the central bank for the month.

However, it marked the 14^th straight month that the CPI breached the central bank’s 2-4% target.

For the first five months, headline inflation averaged 7.5%, still well above the BSP’s 5.5% forecast for the year.

“The markets are now anticipating a possible pause on Fed rates on June 14, and also a pause on local policy rates on June 22,” Mr. Ricafort added.

“But markets also priced in a possible +0.25 Fed rate hike on July 26, (and this) could be matched locally,” he added.

The US Federal Reserve has raised borrowing costs by 500 bps since March last year, bringing its target interest rate to 5-5.25%.

It will meet to discuss policy on June 13-14.

Meanwhile, the BSP last month paused its aggressive tightening cycle after hiking for nine straight meetings amid expectations of easing inflation, with the key rate now at 6.25%.

The Monetary Board raised benchmark interest rates by 425 bps from May 2022 to March 2023.

The next BSP policy meeting will be held on June 22. — By Keisha B. Ta-asan