TDF yields rise as BSP, Fed further hike rates

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits climbed further on Wednesday following continuous rate hikes locally and in the United States.

Demand for the term deposit facility (TDF) of the central bank totaled P296.495 billion on Wednesday, above the P280-billion offering as well as the P293.004 billion in tenders for a P220-billion offer recorded last week.

Broken down, bids for the seven-day term deposits amounted to P171.205 billion, slightly higher than the P170 billion auctioned off by the BSP. This is below the P224.229 billion in tenders a week earlier, where the BSP offered P140 billion.

Accepted rates ranged from 3.82% to 4.6%, wider than the 3.8088% to 4.22% margin seen in the prior auction. With this, the average rate of the one-week paper rose by 30.17 basis points (bps) to 4.2959% from 3.9942% previously.

Meanwhile, the 14-day papers attracted P125.290 billion in bids against the P110-billion offering. Demand was also up from the P68.775 billion in tenders for the P80-billion offer seen on Sept. 21.

Banks asked for yields from 4.1% to 4.43%, also wider than the 3.84% to 4.25% band recorded a week earlier. This caused the average rate of the two-week term deposit to increase by 17.47 bps to 4.3428% from 4.1681%.

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.

Yields on the term deposits were higher following the widely expected policy rate hikes last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message

The BSP on Sept. 22 raised benchmark interest rates by 50 bps to rein in persistently high inflation amid a hawkish US Federal Reserve.

The consumer price index climbed to 6.3% year on year in August, exceeding the BSP’s 2-4% target this year for a fifth straight month.

“Average inflation is still projected to breach the upper end of the 2-4% target range at 5.6% in 2022,” the central bank said on Thursday, adding that the forecast for next year had also increased to 4.1%. The forecast for 2024 eased to 3%.

The Monetary Board has raised borrowing costs by a total of 225 bps since May while the Federal Open Market Committee has increased rates by 300 bps since March, including its third 75-bp increase last week.

Yields were also higher as industry players expect further hikes in local policy rates to help support the exchange rate, Mr. Ricafort added.

BSP Governor Felipe M. Medalla earlier signaled the Philippine central bank will resort to more interest rate hikes depending on the Federal Reserve’s action.

“Strong dollar is requiring us to have bigger policy rate increases,” Mr. Medalla said in an interview with Bloomberg TV last week.

“Clearly the Fed’s policies have affected our choices. We don’t want to match the Fed, at the same time we have to respond,” he added.

The peso closed at P58.98 against the greenback on Wednesday, strengthening by one centavo from its P58.99 finish on Tuesday, Bankers Association of the Philippines data showed.

However, the local unit breached the P59-a-dollar level for the first time in intraday trading. It has weakened by 15.64% or P7.98 from its P51-per-dollar close on Dec. 31, 2021. — Keisha B. Ta-asan