Yields on term deposits rise after BSP tightening
Yields on term deposits rise after BSP tightening

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits continued to rise on Wednesday following last week’s aggressive tightening, with market players anticipating more rate hikes to temper elevated inflation.

The central bank’s term deposit facility (TDF) fetched bids amounting to P278.916 billion on Wednesday, below the P360-billion offer as well as the P336.551 billion in tenders recorded for the P350 billion on the auction block last week.

Broken down, tenders for the six-day papers reached P142.235 billion, below the P200 billion auctioned off by the central bank and failing to beat the P195.418 billion in bids for a P210-billion offering a week ago.

Banks asked for yields ranging from 5.1% to 5.825%, wider than the 5% to 5.55% band seen a week ago. This caused the average rate of the one-week deposit to rise by 21.34 basis points (bps) to 5.4921% from 5.2787% previously.

The tenor was shorter than the usual seven-day deposits offered by the BSP due to a holiday on Nov. 30 in observance of Bonifacio Day.

Meanwhile, bids for the 14-day term deposits amounted to P136.681 billion, lower than the P160 billion auctioned off by the BSP and the P141.133 billion in tenders for the P140-billion offer on Nov. 16.

Accepted rates for the tenor were from 5.15% to 6%, higher than the 4.95% to 5.625% margin seen a week ago. With this, the average rate for the two-week paper increased by 19.73 bps to 5.6635% from 5.4662% logged in the previous auction.

The central bank has not offered 28-day term deposits for more than a year 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 siphon off excess liquidity in the financial system and to better guide market rates.

“The BSP increased the offer volume in the TDF auction to P360 billion from P350 billion in the previous week. The volume was allocated between the 7-day and 14-day tenors at P200 billion (from P210 billion) and P160 billion (from P140 billion), respectively,” BSP Deputy Governor Francisco G. Dakila, Jr. said, adding that both tenors were undersubscribed.

“The results of the TDF auction reflected the partial pass-through of the BSP policy rate hike last week. Going forward, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments,” Mr. Dakila said.

The BSP last week delivered a jumbo rate hike to rein in rising prices. The Monetary Board increased the overnight reverse repurchase or policy rate by 75 bps to 5%, the highest in nearly 14 years. The rates on the central bank’s overnight deposit and lending facilities were also increased to 4.5% and 5.5%, respectively.

The central bank has now hiked rates by 300 bps since May in its battle against elevated inflation.

Headline inflation in October accelerated to 7.7%. For the first 10 months, inflation averaged 5.4%, higher than the central bank’s 2-4% target but below its 5.8% forecast for the year.

Yields on the term deposits were also higher as the market expects the BSP to continue matching the US Federal Reserve’s policy move next month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Felipe M. Medalla on Tuesday ruled out further outsized or off-cycle increases, but said they will need to keep on raising borrowing costs as the Fed’s own tightening cycle continues.

The Monetary Board’s next review will be held on Dec. 15.

Meanwhile, the US central bank has hiked rates by 375 bps since March, bringing the fed funds rate at the 3.75-4% range. It is expected to begin considering smaller increases as early as its Dec. 13-14 meeting. — Keisha B. Ta-asan