Term deposit yields go down before BSP review

TERM DEPOSIT yields fell on Wednesday ahead of expectations of further easing by the Bangko Sentral ng Pilipinas’ (BSP) at its last rate-setting meeting for the year.

The central bank’s term deposit facility (TDF) fetched bids amounting to P248.991 billion on Wednesday, well below the P310-billion offering and the P350.69 billion in tenders for the P270 billion auctioned off a week ago.

Broken down, tenders for the eight-day papers reached P201.815 billion, above the P180 billion auctioned off by the central bank and the P198.58 billion in bids for the P160-billion in seven-day deposits placed on the auction block a week prior.

Banks asked for yields ranging from 5.95% to 6.0199%, lower than the 6.985-6.04% band seen a week earlier. This caused the average rate of the one-week deposits to decline by 1.72 basis points (bps) to 6.0076% from 6.0248% previously.

Meanwhile, bids for the 15-day term deposits amounted to P47.176 billion, sharply lower than the P130-billion offering and the P152.11 billion in tenders for the P110-billion offer in the previous week.

Accepted rates for the tenor were from 5.96% to 6.074%, lower than the 6% to 6.08% margin seen a week ago. With this, the average rate for the two-week deposits fell by 3 bps to 6.0314% from 6.0614% logged in the prior auction.

The TDF tenors were adjusted in view of the upcoming holidays.

The central bank has not auctioned 28-day term deposits for more than four years to give way to its weekly offerings of securities with the same tenor.

The term deposits and the BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates.

Term deposit yields went down ahead of the Philippine central bank’s policy decision on Thursday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A BusinessWorld poll conducted last week showed that 13 out of 16 analysts expect the Monetary Board to reduce the target reverse repurchase rate by 25 bps at its meeting today (Dec. 19).

If realized, this would bring the benchmark rate to 5.75% from the current 6%.

This would also mark the third straight meeting the central bank will cut rates since it began its easing cycle in August with a 25-bp cut. It trimmed borrowing costs by another 25 bps in October.

Mr. Ricafort said markets are also anticipating the results of the US Federal Reserve’s own meeting.

The Federal Reserve was expected to lower borrowing costs on Wednesday in what some observers are calling a “hawkish cut” set to be delivered alongside policy makers’ updated interest rate outlooks and economic forecasts covering the first months of the incoming Trump administration, Reuters reported.

The anticipated quarter-percentage-point move would lower the US central bank’s benchmark policy rate to the 4.25%-4.5% range, a full percentage point below where it stood in September when it began easing the tight monetary policy used to counter a surge in inflation that began in 2021.

How much further and how fast rates will fall next year remains increasingly uncertain with inflation still lodged above the Fed’s 2% target, the economy growing faster than expected, and the prospect that President-elect Donald J. Trump’s tariff, tax and immigration policies could change the economic landscape in unpredictable ways once he takes office in January.

Between data showing inflation stalled above the 2% target and Mr. Trump’s victory in the Nov. 5 presidential election, investors now see the Fed perhaps cutting the benchmark rate by only half a percentage point next year — and they will be studying the projections and Fed Chair Jerome H. Powell’s remarks in a post-meeting press conference closely to see if policy makers are also becoming more cautious about further rate reductions. — Luisa Maria Jacinta C. Jocson with Reuters