YIELDS on term deposit climbed on Wednesday as the longer tenor on offer was undersubscribed, with the market awaiting the Bangko Sentral ng Pilipinas’ (BSP) policy meeting, where it is expected to raise rates anew.
Total bids for the central bank’s term deposit facility (TDF) reached P290.814 billion, barely filling the P290-billion offer but below the P335.344 billion in tenders last week.
Broken down, the seven-day papers fetched bids amounting to P204.946 billion, higher than the P170-billion auctioned off by the central bank. This was also above the P196.194 billion in tenders logged in the previous auction.
Banks asked for yields ranging from 3.49% to 3.75%, a narrower and higher margin compared with the 3.38% to 3.6888% band seen a week ago. This caused the average rate of the one-week papers to rise by 12.9 basis points (bps) to 3.6913% from 3.5623%.
Meanwhile, demand for the 14-day term deposits amounted to just P85.868 billion, below the P120-billion offering as well as the P139.150 billion in tenders recorded on Aug. 10.
Accepted rates for the papers were from 3.5% to 3.75%, marginally slimmer than the 3.48-3.75% range seen last week. With this, the average rate of the two-week papers inched up by 2.57 bps to 3.7019% from 3.6762% in the previous week’s auction.
The central bank has not auctioned off 28-day term deposits for more than a year 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 reflect market participants’ continued preference for the shorter tenor given expectations of another rate hike by the BSP and the issuance of retail Treasury bonds,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.
“In addition, higher loan releases by banks point to lower excess liquidity for placement with the BSP’s deposit facilities. Going forward, the BSP’s monetary operations will continue to be guided by its assessment of the latest liquidity conditions and market developments,” Mr. Dakila added.
Yields on the term deposits were higher a day before an expected rate hike from the BSP, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
“Investors are happy because yields are moving closer to the inflation rate. In relative value, yields are becoming more active for investors,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in an interview on Wednesday, adding that there is excess liquidity in the market.
BSP Governor Felipe M. Medalla on Wednesday said the Monetary Board could hike benchmark rates by as much as 50 bps at their Aug. 18 meeting and that they are not ruling out further increases this year.
A BusinessWorld poll held last week showed 16 out of 18 analysts expect the BSP’s policy-setting Monetary Board to hike rates anew on Thursday, with most analysts forecasting a 50-bp increase as inflation remains elevated.
Headline inflation quickened to 6.4% in July, a near four-year high. This was also faster than the 6.1% in June and 3.7% a year ago.
For the first seven months, inflation averaged 4.7%, higher than the 4% seen in the same period in 2021 and the central bank’s 2-4% target for the year but lower than its 5% forecast.
The Monetary Board has raised rates by a total of 125 bps since May, including a 75-bp off-cycle hike last month. — Keisha B. Ta-asan