Term deposit yields slip before inflation report

TERM DEPOSIT YIELDS slipped on Wednesday amid expectations of slower December headline inflation, which could lead to monetary policy easing this year.

The term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) fetched bids amounting to P368.126 billion on Wednesday, above the P300-billion offering and the P242.295 billion in tenders for the P230-billion offer a week ago.

Broken down, tenders for the seven-day papers reached P203.117 billion, higher than P160 billion auctioned off by the central bank and the P137.115 billion in bids for a P120-billion offering seen the previous week.

Banks asked for yields ranging from 6.5525% to 6.6175%, a wider and lower margin compared with the 6.6% to 6.63% band seen a week ago. This caused the average rate of the one-week deposits to decrease by 1.64 basis points (bps) to 6.5983% from 6.6147% previously.

Meanwhile, bids for the 14-day term deposits amounted to P165.009 billion, above the P140-billion offering and the P105.180 billion in tenders for the P110 billion auctioned off on Dec. 27.

Accepted rates for the tenor were from 6.5625% to 6.65%, lower than the 6.6% to 6.68% margin seen a week ago. With this, the average rate for the two-week deposits dropped by 1.99 bps to 6.6203% from the 6.6402% seen in the prior auction.

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

The term deposits and the 28-day 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 on Wednesday as inflation likely eased last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A BusinessWorld poll last week yielded a median estimate of 4% for December headline inflation, within the BSP’s 3.6-4.4% forecast for the month. This is slightly slower than the 4.1% in November but significantly below the 8.1% in December 2022.

If realized, December could mark the first time that inflation met the central bank’s 2-4% target after 20 straight months. It would also be the slowest since the 3% print in February 2022.

This would bring the 2023 inflation average to 6%, matching the BSP’s baseline forecast.

The Philippine Statistics Authority will release December consumer price index data on Friday.

TDF yields dropped after global crude oil prices hit two-week lows, which could bring inflation down towards the central bank’s 2-4% target in the near term, Mr. Ricafort said, and support rate cuts this year.

At its December meeting, the Monetary Board left its policy rate unchanged at a 16-year high of 6.5% for a second straight meeting.

The central bank raised borrowing costs by a total of 450 bps from May 2022 to October 2023.

The Monetary Board will hold its first policy meeting for this year on Feb. 15.

Markets are also pricing in 150 bps in rate cuts from the US Federal Reserve as early as March or May, Mr. Ricafort added.

The Fed kept borrowing costs unchanged at 5.25-5.5% in December after hiking rates by 525 bps from March 2022 to July 2023. — Keisha B. Ta-asan