Yields on central bank’s term deposits decline

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits dropped on Wednesday following recent changes in the regulator’s money market operations.

Demand for the BSP’s term deposit facility (TDF) amounted to P446.698 billion on Wednesday, surpassing the P340-billion offer and P311.766 billion in tenders for a P260-billion offer last week.

BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement that the central bank’s term deposit facility was met with sustained strong demand.

“The BSP raised the total volume offering in the TDF to P340 billion, with the 7-day tenor increased to P200 billion (from P160 billion) and the 14-day tenor raised to P140 billion (from P100 billion),” he said.

“Looking ahead, the BSP’s monetary operations will continue to be guided by its assessment of prevailing liquidity conditions and market developments,” Mr. Dakila said.

The seven-day term deposits fetched bids amounting to P248.137 billion, surpassing the P170 billion auctioned off by the BSP and P167.276 billion in tenders logged the previous week for a P160-billion offer.

Accepted rates for the tenor ranged from 6.33% to 6.575%, lower than the 6.498% to 6.6% band logged a week ago. This caused the average rate of the one-week deposits to drop by 6.42 basis points (bps) to 6.5191% from 6.5833% previously.

Meanwhile, demand for the two-week deposits amounted to P198.561 billion, higher than the P140-billion offer as well as  P144.490 billion in bids for the P100 billion auctioned off last week.

Banks asked for yields from 6.34% to 6.58%, a lower and wider margin compared with the 6.5% to 6.605% seen last week. This caused the average rate of the paper to decline by 6.45 bps to 6.5227% from 6.5872% quoted on Sept. 6.

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 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.

TDF yields were lower on Wednesday as the central bank shifted to a variable-rate auction format for its overnight reverse repurchase (RRP) facility last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The central bank on Sept. 8 introduced a formal operational target called the overnight (ON) RRP rate. Mr. Ricafort said the average ON rate eased to about 6.22%, lower compared with the BSP’s target RRP rate of 6.25%.

Similar to the BSP’s TDF and securities auctions, the variable rate format for the RRP has a pre-determined offer volume.

TDF yields were lower amid the implementation of the price ceiling for local rice prices that is meant to help curb inflationary pressures, Mr. Ricafort said.

The government has imposed a price ceiling of P41 per kilo for regular milled rice and P45 per kilo for well-milled rice since Sept. 5.

The Department of Finance is also proposing to cut the tariff rates for rice to help augment supply amid the price ceiling.

Mr. Ricafort added that TDF yields declined as BSP officials said inflation could still fall within the 2-4% in the fourth quarter or first quarter next year despite higher rice and oil prices recently.

Headline inflation quickened to 5.3% in August from 4.7% in July.

For the first eight months, the consumer price index averaged 6.6%, still above the BSP’s 5.6% forecast and 2-4% target for the year. — K.B. Ta-asan