BSP term deposit yields rise ahead of Federal Reserve policy meeting

By Keisha B. Ta-asan, Reporter

TERM DEPOSIT YIELDS of the Philippine central bank rose on Wednesday, ahead of the US Federal Reserve’s policy meeting.

Demand for the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) stood at P286.877 billion, higher than the P240 billion on the auction block. Last week, bids reached P249.767 billion against P220 billion on offer.

The central bank raised the volume for the TDF auction to P240 billion and adjusted the allocation between the seven- and 14-day tenors, BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

“Total tenders reached P286.877 billion, higher than the BSP’s expected volume range,” he said. “The respective bid-to-cover ratios for the seven-day and 14-day TDF stood at 1.183x and 1.210x, further reflecting market participants’ preference for both tenors.”

Tenders for one-week term deposits reached P153.730 billion, surpassing the P130-billion offer. Last week, bids hit P133.675 billion against P120 billion on offer.

Banks asked for yields ranging from 6.55% to 6.6144%, narrower than 6.375% to 6.625% on June 7. The average rate for the seven-day debt rose by 1.1 basis points (bps) to 6.5933%.

Meanwhile, the 14-day deposits attracted P133.147 billion in bids, higher than P110 billion being sold by the central bank. Last week, tenders hit P116.092 billion against a P100-billion offer.

Accepted rates for the two-week debt ranged from 6.5% to 6.6299%, also narrower than 6.3% to 6.6344% last week. This caused the tenor’s average rate to increase by 0.54 bp to 6.5981%.

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

The central bank uses the term deposits and 28-day bills to mop up excess liquidity in the financial system and to better guide market rates.

“The BSP’s monetary operations will remain guided by its assessment of prevailing liquidity conditions and market developments,” Mr. Dakila said.

The higher TDF yields on Wednesday followed the higher rates of US Treasuries, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The two-year Treasury yields hit 4.707% over night, the highest since March, before easing by 4 bps to 4.6519% in Asian hours, Reuters reported.

The benchmark 10-year yields also climbed to the highest in two-and-half weeks at 3.8450%. They were last down by three bps to 3.8056%.

The US Federal Reserve may also pause its tightening cycle on June 15, Mr. Ricafort said. “However, the markets recently priced in a possible 25-bp Fed rate hike on July 26, as also signaled earlier by some Fed officials.”

The Fed is widely expected to hold off on raising interest rates after a softer US inflation report. Consumer prices in the US rose by 4% in May, the slowest in more than two years, easing from April’s 4.9%.

However, sticky core inflation may still prompt the US central bank to hike policy rates after this week’s meeting. US core inflation slightly slowed to 5.3% from 5.5% a month ago.

“Any future Fed rate moves could be matched by the BSP to maintain a healthy interest rate differential and help stabilize the peso exchange rate and overall inflation,” Mr. Ricafort said.

Last month, the Philippine central bank kept the key rate at 6.25%. It was its first pause after increasing borrowing costs nine times straight since May last year, for a total of 425 bps.

Inflation eased to an eight-month low of 6.1% in May. To date, it has averaged 7.5%, still above the BSP’s 5.5% full-year forecast and 2-4% target. — with Reuters