Yields on BSP’s term deposits rise on rate hike expectations

BW FILE PHOTO

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits climbed further on Wednesday, with the 14-day papers slightly undersubscribed, amid expectations of another policy rate hike next week.

Demand for the central bank’s term deposit facility (TDF) totaled P306.971 billion on Wednesday, above the P240-billion offering as well as the P242.146 billion in tenders for a P200-billion offer recorded last week.

Broken down, bids for the seven-day term deposits amounted to P207.377 billion, well above the P140 billion auctioned off by the BSP. It also surpassed the P129.957 billion in tenders for a P120-billion offer seen a week earlier.

Accepted rates ranged from 3.75% to 3.8995%, slightly narrower than the 3.7345% to 3.9999% margin seen in the prior auction. With this, the average rate of the one-week paper rose by 1.86 basis points (bps) to 3.8543% from 3.8357% previously.

Meanwhile, the 14-day papers attracted just P99.594 billion in bids versus the P100 billion on offer, also below the P115.189 billion in tenders for the P80-billion offering on Sept. 7.

Banks asked for yields from 3.8% to 4.25%, a wider and higher range compared with the 3.75% to 3.8699% band recorded a week earlier. This caused the average rate of the two-week term deposit to increase by 11.12 bps to 3.9577% from 3.8465%.

The BSP has not auctioned off 28-day term deposits for more than a year to give way to its weekly offerings of securities with the same tenor.

The TDF and the 28-day bills are used by the BSP to gather excess liquidity in the financial system and to better guide market rates.

“The results of the TDF auction show market participants’ preference for the shorter tenor ahead of the BSP’s policy meeting on 22 September and expectations of a further interest rate hike,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

“Nonetheless, liquidity in the financial system remains ample as indicated by the total tenders received during the auction,” Mr. Dakila said. “Moving ahead, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments.”

Yields on the BSP’s term deposits were higher as the weaker peso could lead to higher import prices and add to inflation pressures, which would prompt the central bank to hike borrowing costs further, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP Monetary Board on Aug. 18 raised benchmark interest rates by 50 bps and signaled it has room for more hikes as it battles high inflation. This brought cumulative increases so far to 175 bps since May.

Headline inflation eased to 6.3% in August from a near four-year high of 6.4% in July. This brought the eight-month average to 4.9%, higher than the central bank’s 2-4% target but still below its 5.4% forecast for the year.

BSP Governor Felipe M. Medalla earlier said the central bank may need to respond if the US Federal Reserve remains hawkish, as its spillover effects on the market, especially the peso, could affect inflation.

The peso on Sept. 8 logged a new all-time low of P57.18 against the dollar following six straight sessions of decline.

On Wednesday, it closed at P57.11 per dollar, down 34 centavos from the previous day, Bankers Association of the Philippines data showed.

Year to date, the peso has weakened by 11.98% or P6.11 from its P51-per-dollar close on Dec. 31, 2021.

Fed Chair Jerome H. Powell last week said the US central bank is “strongly committed” to fighting inflation and needs to continue acting strongly to bring prices down.

The Fed will meet to review policy on Sept. 20-21, where markets expect another aggressive hike. It has raised rates by 225 bps so far since March, including back-to-back 75-bp hikes in June and July. — Keisha B. Ta-asan