Yields on term deposits fall amid hopes for further BSP easing
YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits dropped sharply on Wednesday, even as the two-week paper was undersubscribed, on expectations of further monetary easing this year.
Demand for the central bank’s term deposit facility (TDF) amounted to P198.961 billion, above the P160-billion offer but below the P207.389 billion in bids for the same volume auctioned off a week prior. The BSP awarded only P155.928 billion in papers as the two-week deposits were undersubscribed.
Broken down, tenders for the seven-day papers reached P123.033 billion, higher than the P80 billion placed on the auction block and the P107.514 billion in bids the same volume offered the previous week. The central bank awarded P80 billion in one-week papers as planned.
Accepted yields were from 5.5% to 5.6%, a lower and wider band compared to the 5.7% to 5.7625% seen a week prior. With this, the average rate of the one-week term deposits fell by 14.21 basis points (bp) to 5.5759% from 5.7518% previously.
Meanwhile, the 14-day papers fetched bids amounting to P75.928 billion, below the P80-billion offer and the P99.875 billion in tenders for the same amount auctioned off a week ago. The BSP accepted all submitted bids.
Banks asked for rates ranging from 5.5% to 5.76%, declining and widening from the 5.7% to 5.78% margin seen last week. This caused the average rate of the two-week papers to drop by 10.15 bps to 5.6495% from 5.751% in the prior auction.
The BSP has not auctioned off 28-day term deposits for more than four years to give way to its weekly offerings of securities with the same tenor.
The TDF and 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 auction yields dropped for a second straight week on Wednesday following the BSP’s widely expected rate cut last week and signals of further policy easing, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The Monetary Board last week cut benchmark interest rates by 25 bps to bring the policy rate to 5.5%, as expected by all 17 analysts in a BusinessWorld poll, putting its easing cycle back on track after an unexpected pause in February.
BSP Governor Eli M. Remolona, Jr. said they are considering further rate cuts this year in “baby steps” of 25 bps at a time.
The central bank has now reduced borrowing costs by a cumulative 100 bps since it kicked off its rate-cut cycle in August last year.
“US President Donald J. Trump’s latest 90-day tariff pause also supported market sentiment recently,” Mr. Ricafort said.
“The BSP TDF auction yields also slightly eased after global crude oil prices declined recently to four-year lows and the peso exchange rate appreciated versus the US dollar, … both of which help support benign inflation and future policy rate cuts.” — A.M.C. Sy
