TDF yields mixed as GDP data boost rate cut hopes

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Yields on the central bank’s term deposits were mixed on Wednesday following the release of data showing that gross domestic product (GDP) growth slowed in 2023, which may prompt the Bangko Sentral ng Pilipinas (BSP) to consider rate cuts to support the economy.

The BSP’s term deposit facility (TDF) fetched bids amounting to P257.394 billion on Wednesday, below the P310 billion on the auction block as well as the P281.954 billion in tenders for a P340-billion offer seen a week ago.

Broken down, tenders for the seven-day papers reached P125.356 billion, lower than the P160 billion auctioned off by the central bank and the P136.488 billion in bids for a P180-billion offering seen the previous week.

Banks asked for yields ranging from 6.5% to 6.612%, slightly wider than the 6.56% to 6.612% band seen a week ago. This caused the average rate of the one-week deposits to increase by 0.24 basis point (bp) to 6.5871% from 6.5847% previously.

Meanwhile, bids for the 14-day term deposits amounted to P132.038 billion, below the P150-billion offering and the P145.466 billion in tenders seen on Jan. 24 for P160 billion on the auction block.

Accepted rates for the tenor were from 6.45% to 6.64%, lower than the 6.6% to 6.6499% margin seen a week ago. With this, the average rate for the two-week deposits slipped by 0.81 bp to 6.6106% from 6.6187% logged in the prior auction.

The BSP has not auctioned off 28-day term deposits for more than three years to give way to its weekly offerings 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.

Term deposit yields were mixed following the release of Philippine GDP data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The latest GDP growth data could still support possible local policy rate cuts, especially if the Federal Reserve starts cutting rates later in 2024, provided inflation remains within the central bank target,” Mr. Ricafort said.

The Philippine economy grew by 5.6% in 2023, falling short of the government’s 6-7% full-year target, the Philippine Statistics Authority reported on Wednesday.

This was slower than the 7.6% expansion in 2022 but was a tad higher than the 5.5% median estimate of 20 economists in a BusinessWorld poll last week.

In the fourth quarter alone, GDP grew by 5.6%. This was slower than the revised 6% in the third quarter and 7.1% in the same quarter in 2022.

The BSP hiked borrowing costs by 450 bps from May 2022 to October 2023, bringing its policy rate to a 16-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. last month said the Monetary Board may cut borrowing costs this year, but this is unlikely to happen within this semester amid lingering risks to the inflation outlook.

Inflation stood at 3.9% in December 2023, bringing the full-year 2023 average to 6% in 2023, above the BSP’s 2-4% target.

The BSP sees inflation easing to 3.7% this year and to 3.2% in 2025.

Meanwhile, the US central bank raised borrowing costs by 525 bps from March 2022 to July 2023, bringing the fed funds rate to 5.25-5.5%.

Markets now expect a 47% chance of a Fed rate cut in March, the CME FedWatch tool showed, down from 88% a month earlier, Reuters reported. They currently anticipate 134 bps of cuts in the year, compared with 160 bps of easing a month earlier.

TDF yield movements were also affected by global crude prices’ recent rise, Mr. Ricafort added. — Keisha B. Ta-asan