Term deposit rates drop despite lower demand

YIELDS ON THE Bangko Sentral ng Pilipinas’ (BSP) term deposits continued to slip despite lower bids on Wednesday, on the back of market optimism over the passage of a key tax reform law seen to support the country’s economic recovery.

Total demand for the central bank’s term deposit facility (TDF) reached P661.872 billion on Wednesday, higher than the P630-billion offering but failing to beat the P704.768 billion in bids seen a week ago.

Broken down, tenders for the one-week papers amounted to P210.61 billion, lower than the P240 billion auctioned off by the BSP as well as the P272.499 billion in bids logged last week.

Accepted rates for the seven-day term deposits ranged from 1.59% to 1.75%, picking up from the 1.5875% to 1.64% band a week ago. This caused the average rate of the papers to settle at 1.6157%, slipping by 0.63 basis point (bp) from the 1.622% recorded on Jan. 27.

Meanwhile, bids for the 14-day papers amounted to P451.262 billion, surpassing the P390 billion on the auction block and the P432.269 billion in tenders received last week.

Banks asked for yields ranging from 1.6% to 1.638%, a slimmer margin compared with the 1.6% to 1.6525% band a week ago. With this, the average rate for the two-week term deposits went down by 1.44 bps to 1.6256% from the 1.64% quoted previously.

The BSP did not offer the 28-day term deposits for the 16th straight week. This follows the start of BSP’s weekly offerings of short-term bills with the same tenor.

The TDF and BSP securities are among the tools used by the central bank to gather excess liquidity in the financial system and to better guide market interest rates.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message that Wednesday’s auction results show there continues to be ample liquidity in the system despite the lower bids seen yesterday versus last week.

He added the lower yields were backed by positive sentiment from investors pricing in the passage of the Corporate Recovery and Tax Incentives for Enterprise Act.

The Bicameral Conference Committee on Monday approved the reconciled version of the bill seeking to immediately lower down the corporate income tax to 25% from 30%. It is expected to be ratified within this week.

Tailor-fitted to address the pandemic, the measure is the revised version of the Corporate Income Tax and Incentives Rationalization Act. Among provisions of the reconciled bill is granting incentives to exporters and “critical” domestic enterprises for up to 17 years. — Luz Wendy T. Noble

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