YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) fell on Tuesday, even as the offer went undersubscribed, as the market continued to price in expectations of further monetary easing,
The 10-day term deposits fetched just P76.657 billion in tenders on Tuesday, below the P80 billion on offer. This was also well below the P171.256 billion in bids for the P80 billion in six-day papers auctioned off on Dec. 17.
The central bank only accepted P72.657 billion in bids. The TDF tenor offered this week was adjusted from the usual seven-day term and the auction was held on a Tuesday instead of Wednesday due to upcoming holidays.
Accepted yields for the 10-day deposits ranged from 4.44% to 4.55%, wider than the 4.4515% to 4.55% band seen in the previous auction. With this, the average rate of the papers went down by 2.14 basis points (bps) to 4.5076% from 4.529% last week.
“The 10-day term deposit facility rate declined further,” the central bank said in a statement. “The BSP maintained the offer volume at P80 billion, while total tenders reached P76.7 billion, resulting in a bid-to-cover ratio of 0.96x.”
This was lower than the bid-to-cover ratio of 2.14x logged a week ago.
The central bank has not offered the 14-day term deposit tenor for two months. It last offered both the one- and two-week papers on Oct. 29.
Also, it has not auctioned off 28-day term deposits for over five years to give way to its weekly offerings of securities with the same tenor.
Both the TDF and BSP bills are used by the central bank to mop up excess liquidity in the financial system and better guide market yields towards the policy rate.
“The BSP TDF auction yield was again slightly lower after recent dovish signals on possibly one more 25-bp BSP rate cut in 2026, especially if economic recovery takes longer,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The market also priced in bets on further easing by the US Federal Reserve, he said, adding that demand was weaker amid a decline in market activity before the holidays.
On Dec. 11, the Monetary Board delivered a fifth straight 25-bp cut to bring the policy rate to an over three-year low of 4.5%. It has now slashed benchmark interest rates by 200 bps since August 2024.
BSP Governor Eli M. Remolona, Jr. said benign inflation gives them room to help support weak domestic demand amid lingering governance concerns that have affected investments, but stressed that they are nearing the end of their easing cycle.
He left the door open to one final 25-bp cut next year as economic prospects have darkened further, with the slowdown in third-quarter growth likely to extend to this quarter and with recovery seen to start only by the second half of 2026.
The Monetary Board will hold its first meeting for 2026 in February.
Meanwhile, the Fed’s rate cut this month brought the target range for US benchmark short-term borrowing costs to 3.5%-3.75%, in the upper range of policymakers’ estimates for a neutral level that neither boosts nor brakes the economy, Reuters reported.
About a third of the central bank’s 19 policymakers felt the rate cut was unnecessary, based on projections published by the Fed at the time.
Mr. Ricafort added that signals of a potential cut in big banks’ reserve requirement ratio (RRR) also helped bring down TDF yields as this would infuse more liquidity into the financial system.
Mr. Remolona earlier said they could bring down universal and commercial banks’ RRR by 300 bps next year, which would bring the ratio to 2% from the current 5%. — Katherine K. Chan