Politics

Yields on BSP’s term deposits rise on rate hike bets, inflation

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TERM DEPOSIT yields went up on Wednesday on expectations of another rate hike this month and ahead of the release of July inflation data. — BW FILE PHOTO

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits climbed further on Wednesday ahead of the release of July inflation data and following rate hike signals from the central bank chief.

Demand for the term deposit facility (TDF) of the central bank amounted to P390.94 billion on Wednesday, above the P330-billion offering as well as the P247.361 billion in tenders recorded last week.

Broken down, bids for the seven-day term deposits amounted to P218.96 billion, higher than the P170 billion auctioned off by the BSP. It also surpassed the P149.475 billion in tenders seen a week earlier.

Accepted rates ranged from 3.25% to 3.65%, narrower than the 3.125% to 3.75% margin seen in the prior auction. With this, the average rate of the one-week paper rose by 12.5 basis points (bps) to 3.5089% from 3.3839% previously.

Meanwhile, the 14-day papers attracted P171.98 billion in bids against the P160-billion offering. Demand for the two-week tenor also went up from the P97.886 billion in tenders seen on July 27. 

Banks asked for yields from 3.4% to 3.725%, also slimmer than the 3.25% to 3.75% band recorded a week earlier. This caused the average rate of the two-week term deposit to increase by 8.23 bps to 3.5723% from 3.49%.

The BSP has not auctioned off 28-day term deposits for more than a year to give way to its weekly offerings of securities with the same tenor.

The TDF and the 28-day bills are used by the BSP to gather excess liquidity in the financial system and to better guide market rates.

Term deposit yields went up ahead of the release of July inflation data on Aug. 5, Friday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The rise was also due to signals from the BSP chief on more rate hikes at their meeting this month amid expectations of continued tightening by the US Federal Reserve, Mr. Ricafort added.

BSP Governor Felipe M. Medalla on Tuesday said the central bank still has room to hike borrowing costs without sacrificing the economy’s recovery as real interest rates remain negative.

He said their planned hike of 25 bps or 50 bps at their Aug. 18 meeting is still supportive of growth. Mr. Medalla added that it is too early to tell if the August increase will be the last for now amid lingering uncertainties at home and abroad.

The Monetary Board last month raised the benchmark interest rates by 75 bps in an off-cycle move, as it sought to contain inflationary pressures exacerbated by the peso’s weakening versus the dollar amid the Fed’s aggressive stance. It has raised rates by 125 bps so far since May.

Headline inflation hit a near four-year high of 6.1% in June, bringing the first-half average to 4.4%, above the central bank’s 2-4% target and 5% forecast for the year.

The BSP expects the July reading to be in the 5.6-6.4% range. July inflation data will be released on Friday.

Meanwhile, the Fed last week raised its key rates by 75 bps for the second straight meeting, as expected, to temper rising inflation. To date, the Fed has raised its policy rates by a total of 225 bps. — K.B. Ta-asan