Term deposits fetch lower yield

THE BANGKO SENTRAL ng Pilipinas’ (BSP) term deposits fetched a slightly lower average rate on Wednesday as the offer drew robust demand before an expected hike in benchmark borrowing costs.

The central bank’s term deposit facility (TDF) attracted P143.646 billion in bids for the seven-day papers, exceeding the P110 billion auctioned off but lower than the P162.605 billion in tenders for the same offer volume in the prior week.

As a result, the bid-to-cover ratio declined to 1.3059 times from the 1.4782 ratio logged during the previous auction.

Still, the BSP fully awarded its P110-billion offer as the average yield eased.

Accepted yields for the one-week deposits were from 4% to 4.5%, wider than the 4% to 4.459% range seen last week. With this, the weighted average accepted rate slipped by 0.08 basis point (bp) to 4.4384% from 4.4392% a week ago.

Yields on the seven-day term deposits edged down before the BSP’s policy meeting on Thursday, where it is widely expected to deliver a second straight hike despite easing inflationary pressures following news of a peace deal between the United States and Iran, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The seven-day BSP TDF average auction yield was again marginally lower and interestingly again slightly below the BSP key overnight rate of 4.5%… a day before the widely expected BSP rate hike of at least +0.25,” he said.

A BusinessWorld poll conducted last week showed that 15 of 20 analysts see the Monetary Board raising the benchmark rate by 25 bps for a second straight meeting this week to 4.75%. Four others projected a larger 50-bp hike, while one penciled in a pause.

Further tightening would help ensure that the central bank stays ahead of the curve and keep inflation expectations anchored amid lingering second-round price effects from the Middle East conflict-driven oil shock, the analysts said.

In May, headline inflation unexpectedly slowed to 6.8% amid lower food and transport costs from the over three-year high of 6.8% in April.

However, core inflation, which excludes volatile food and fuel prices, breached the BSP’s target for the first time in over two years at 4.1% in May.

The central bank has said that it will take all necessary measures to temper inflation spillovers and bring the headline print back within its 2%-4% tolerance band, adding that it is willing to make a stronger response if elevated inflation expectations become entrenched.

Mr. Ricafort said improving market sentiment and the peso’s rebound amid prospects of an end to the Middle East war could allow the BSP to become less hawkish and lessen the need for more interest rate increases.

The deal is expected to formally reopen the Strait of Hormuz, a vital chokepoint for global oil trade, easing the burden on most energy importers such as the Philippines.

He added that the oversubscription seen for the TDF offering may reflect strong liquidity in the financial system.

The central bank uses the TDF and BSP bills to mop up excess liquidity in the financial system and better guide market yields towards its policy rate.

The BSP last auctioned off both the seven-day and 14-day deposits on Oct. 29. It has not offered 28-day term deposits for over five years to give way to its weekly offerings of securities with the same tenor.

In its latest Monetary Policy Report, the central bank said it limited its TDF offerings to a single tenor to rationalize liquidity operations and focus on tenors that would boost monetary policy transmission.

As of mid-February, the BSP’s market operations have absorbed P1.2 trillion in excess liquidity from the market, with 9% of this being siphoned off via the TDF. — Katherine K. Chan