Term deposit yields climb on weak demand, rate hike hints

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YIELDS on the term deposits auctioned off by the Bangko Sentral ng Pilipinas (BSP) climbed on Wednesday amid weaker demand and rate hike signals.

Demand for papers under the BSP’s term deposit facility (TDF) totaled P247.361 billion on Wednesday, lower than the P310 billion on the auction block and the P321.566 billion in bids logged last week.

Broken down, the seven-day deposits attracted tenders amounting to P149.475 billion, short of the P150-billion offering as well as the P151.948 billion in bids recorded the prior week.

Rates for the one-week papers ranged from 3.125% to 3.75%, narrower and higher than the 2.75% to 3.69% range logged in the previous week. This brought the average rate for the tenor to 3.3839%, up by 13.80 basis points (bps) from the 3.2459% seen on July 20.

For the 14-day deposits, tenders hit P97.886 billion, below the P160-billion offering and the P169.618 billion in bids last week.

Accepted yields were seen from 3.25% to 3.75%, a higher and slimmer band compared to the 2.775% to 3.72% logged the previous week. This brought the average rate of the two-week deposits to 3.49%, increasing by 14.83 bps from the 3.3417% logged a week ago.

The central bank has not auctioned 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 mop up excess liquidity in the financial system and to better guide market rates.

Yields on the term deposits were higher as the BSP chief signaled another rate increase at the Monetary Board’s Aug. 18 meeting, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Bangko Sentral ng Pilipinas Governor Felipe M. Medalla on Tuesday signaled an interest rate hike of less than 75 basis points (bps) at their Aug. 18 meeting with the US Federal Reserve expected to continue firing off big increases, although he ruled out another off-cycle move.

In a surprise move, the BSP raised its benchmark rates by 75 bps on July 14 as it sought to contain broadening price pressures.

This brought the rate on the key overnight reverse repurchase facility to 3.25%. The BSP’s overnight deposit and lending facilities were also increased by 75 bps, to 2.75% and 3.75%, respectively.

The Monetary Board has raised benchmark interest rates by a total of 125 bps so far this year as inflation continues to remain elevated.

Headline inflation was at 6.1% year on year in June, the fastest in nearly four years and exceeded the central bank’s 2-4% target band for a third straight month. The average inflation rate in the first six months is 4.4%, still below the BSP’s full-year forecast of 5%. — Keisha B. Ta-asan