Term deposit yields climb on tightening bets

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YIELDS on the central bank’s term deposits rose on Wednesday as still-elevated inflation could prompt the Bangko Sentral ng Pilipinas (BSP) to further tighten monetary policy.

Demand for the BSP’s term deposit facility (TDF) reached P356.153 billion on Wednesday, above the P340 billion auctioned off by the central bank and the P245.13 billion in bids for a P300-billion offering seen last week.

“The BSP raised the volume offering for the TDF auction to P340 billion (from P300 billion),” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.

“Based on actual bids received last week, the total offer volume was reallocated between the 7-day and 14-day tenors at P200 billion (from P160 billion) and P140 billion (same as the previous auction), respectively,” he said.

Broken down, bids for the one-week term deposits amounted to P223.392 billion, above the P200 billion on the auction block and the P149.636 billion in tenders logged the previous week for a P160-billion offer.

Accepted rates were from 6.4375% to 6.6%, narrower than the 6.368% to 6.65% band seen a week ago. This brought the average rate of the seven-day papers to 6.507%, increasing by 3.83 basis points (bps) from the 6.4687% quoted previously.

Meanwhile, the 14-day papers attracted bids totaling P132.761 billion, a tad lower than the P140 billion auctioned off by the central bank but surpassing the P95.494 billion in tenders recorded on March 1.

Lenders asked for yields ranging from 6.395% to 6.749%, wider than the 6.3945% to 6.62% margin logged a week earlier. With this, the average rate of the two-week deposit rose by 4.55 bps to 6.5387% from 6.4932% 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 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.

“The results of the TDF auction came following the release of the February 2023 inflation data, which remained elevated and further raised the possibility of a continued hawkish monetary policy stance from the BSP,” Mr. Dakila said.

He added that the BSP’s monetary operations will continue to be guided by its assessment of liquidity conditions and market developments.

TDF yields climbed on expectations of another BSP hike as headline inflation only eased slightly last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The consumer price index (CPI) eased to 8.6% in February from the 14-year high 8.7% in January, data from the Philippine Statistics Authority (PSA) showed.

February inflation was below the 8.9% median in a BusinessWorld poll conducted last week, but within the central bank’s 8.5-9.3% projection.

For the first two months of the year, inflation averaged 8.6%.

The BSP expects inflation to average 6.1% this year before easing to 3.1% in 2024.

BSP Governor Felipe M. Medalla earlier said they could consider raising borrowing costs by 25 bps or 50 bps at their policy meeting on March 23.

The central bank hiked benchmark interest rates by 50 bps in its Feb. 16 review, bringing the key rate to 6%. The move brought cumulative increases since May 2022 to 400 bps. — Keisha B. Ta-asan