YIELDS on the term deposits offered by the Bangko Sentral ng Pilipinas (BSP) climbed on Wednesday following the release of data showing faster inflation and hawkish signals from the incoming central bank chief.
Total bids for the central bank’s term deposit facility (TDF) reached P355.58 billion on Wednesday, above the P300-billion offer as well as the P345.386 billion in tenders seen last week.
Broken down, the seven-day papers fetched bids amounting to P144.719 billion, higher than the P140-billion auctioned off by the central bank. However, this was lower than the P168.867 billion in tenders logged in the previous auction.
Banks asked for yields ranging from 2% to 2.5125%, a wider margin compared with the 2% to 2.4% band seen a week ago. This caused the average rate of the one-week paper to rise by 5.36 basis points (bps) to 2.3249% from 2.2713%, central bank data showed.
Meanwhile, demand for the 14-day term deposits amounted to P210.861 billion, higher than the P160-billion offering. This was also higher than the P176.519 billion in tenders recorded a week ago.
Accepted rates for the papers were from 2.245% to 2.550%, narrower than the 2.125% to 2.66% range seen on June 1. With this, the average rate of the two-week paper increased by 10.7 bps to 2.3991% from 2.2921% in the previous week’s auction.
The central bank has not auctioned 28-day term deposits for more than a year 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.
TDF yields climbed due to faster inflation in May, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
He said signals from the incoming BSP chief on further rate hikes to arrest rising inflation also caused term deposit yields to rise.
Inflation quickened to its fastest pace in over three years in May due to higher food and transport costs, preliminary data from the Philippine Statistics Authority released on Tuesday showed.
Headline inflation in May surged by 5.4% year on year from 4.9% in April and 4.1% a year ago. This matched the 5.4% median estimate in a BusinessWorld poll conducted late last week, which was the midpoint of the 5-5.8% outlook range given by the BSP for that month.
May’s headline print was also the fastest since the 6.1% seen in November 2018.
Year to date, inflation has averaged 4.1%. This is lower than the central bank’s 4.6% forecast but above its 2-4% target for the year.
On Tuesday, Monetary Board member and incoming BSP chief Felipe M. Medalla said in a Bloomberg interview that they are “almost” sure to hike at their June 23 meeting and there is also a “90% chance” of another increase at their subsequent review on Aug. 18.
Mr. Medalla said the real question is if an August hike would be the last one for the year and noted decisions beyond this would be data dependent.
Increases worth 25 bps in the Monetary Board’s June and August meetings would bring the benchmark rate to 2.75% from 2.25% currently.
The rise in global oil prices and US yields also affected TDF rates, Mr. Ricafort added.
Brent crude futures for August had risen 59 cents, or 0.48%, to $121.15 a barrel by 0533 GMT after closing on Tuesday at the highest since May 31, Reuters reported.
US West Texas Intermediate crude for July was at $120.09 a barrel, up 66 cents, or 0.55%, after reaching its highest settlement since March 8 in the previous session.
Meanwhile, the US benchmark 10-year yield was 3.003%, having edged down from a four-week high of 3.064% on Tuesday. — K.B. Ta-asan with Reuters