Yields on term deposits rise amid lower demand

Yield on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) went up on Wednesday as both tenors went undersubscribed following hawkish signals from monetary authorities.

Total bids for the central bank’s term deposits reached PHP 324.328 billion, below the PHP 400-billion offer for this week. This was also lower than the HP 343.603 billion in tenders seen last week for a PHP 310-billion offer.

Broken down, the seven-day papers fetched bids amounting to PHP 199.395 billion, below the PHP 230-billion auctioned off by the BSP and the PHP 201.652 billion in tenders logged in the previous auction for a PHP 190-billion offer.

Banks asked for yields ranging from 6.5325% to 6.7399%, a higher and narrower margin compared with the 6.439% to 6.7273% band seen a week ago. This caused the average rate of the one-week paper to rise by 4.01 basis points (bps) to 6.6141% from 6.574%.

Meanwhile, demand for the 14-day term deposits amounted to PHP 124.933 billion, lower than the P170-billion offering. This was also below the PHP 141.951 billion in tenders recorded a week ago for a PHP 120-billion offer.

Accepted rates for the papers were from 6.55% to 6.75%, a higher margin than the 6.4% to 6.67% range seen on Nov. 3. With this, the average rate of the two-week deposit rose by 3.31 bps to 6.6233% from 6.5902% in the previous week’s auction.

The central bank has not auctioned 28-day term deposits for three years to give way to its weekly offering 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 BSP’s term deposits were higher after hawkish signals from the central bank, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The central bank said it intends to keep policy settings “sufficiently tight” until inflation is seen to fall within the 2-4% target range and inflation expectations are better anchored.

“The BSP remains prepared to undertake further monetary policy action as necessary to prevent supply-side pressures on prices from leading to additional second-round effects and dislodging inflation expectations,” it said.

Inflation eased to 4.9% in October from 6.1% in September and 7.7% in the same month in 2022. It was significantly slower than the 5.7% median estimate in a BusinessWorld poll last week and below the 5.1-5.9% forecast of the BSP.

The inflation print was the slowest pace in three months or since 4.7% in July. However, October marked the 19^th straight month that inflation breached the central bank’s 2-4% target band.

For the first 10 months, inflation averaged 6.4%, still above the BSP’s 5.8% full-year forecast.

Mr. Ricafort also attributed the higher yields to the BSP’s off-cycle rate hike that took effect on Oct. 27.

The BSP hiked borrowing costs by 25 bps in an off-cycle move last month, bringing the policy rate to a fresh 16-year high of 6.5%.

The central bank has raised policy rates by 450 bps since May 2022.    

Its next policy-setting meeting is on Nov. 16. — K.B. Ta-asan