Yields on term deposits rise after BSP rate hike

YIELDS on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) increased on Wednesday amid slightly weaker demand and after the central bank unexpectedly hiked benchmark interest rates last week.

Total bids for the central bank’s term deposits reached P321.566 billion on Wednesday, short of the P330-billion offer and also lower than the P385.602 billion in tenders recorded last week.

Broken down, the seven-day papers fetched bids amounting to P151.948 billion, lower than the P160 billion auctioned off by the BSP. It was also less than the P204.106 billion in tenders logged the previous Wednesday.

Banks asked for yields ranging from 2.75% to 3.69%, climbing from the 2.64% to 2.71% band seen a week ago. This caused the average rate of the one-week paper to rise by 56.21 basis points (bps) to 3.2459% from 2.6838% last week.

Meanwhile, demand for the 14-day term deposits amounted to P169.618 billion, below the P170-billion offering as well as the P181.493 billion in tenders recorded a week ago.

Accepted rates for the papers were from 2.775% to 3.72%, higher and wider than the 2.625% to 2.75% margin seen on July 13. With this, the average rate of the two-week paper increased by 61.82 bps to 3.3417% from 2.7235% in the prior auction.

The central bank has not auctioned 28-day term deposits for more than a year to give way to its weekly offering of securities with the same tenor.

The term deposits and the 28-day bills are used by the BSP to mop up excess liquidity in the financial system and to better guide market rates.

“The results of the auction show that there has been a partial pass-through of the policy rate to market rates amid ample overall liquidity in the financial system,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement. “The weighted average interest rates of both tenors increased, reflecting the impact of the 75-bp hike in the policy interest rate on 14 July 2022.”

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

The BSP last week raised benchmark interest rates by an all-time high 75 bps in an off-cycle move and left the door open for further tightening amid growing risks to inflation.

BSP Governor Felipe M. Medalla said the Monetary Board’s “significant” hike was due to signs of “sustained and broadening price pressures” as well as spillover effects from aggressive tightening in other countries, such as the United States, amid global inflation concerns.

The hike was done outside of their scheduled policy meetings and was the first off-cycle increase since April 16, 2020. Following Thursday’s move, the BSP has now raised rates by a total of 125 bps this year and the key rate is now at 3.25%, matching the March 2020 level.

The BSP has become more aggressive as headline inflation reached 6.1% in June, the fastest in nearly four years. This brought the first-half average to 4.4%, above the central bank’s 2-4% goal but still lower than its 5% forecast for the year.

TDF yields were also higher amid hawkish signals from the US Federal Reserve, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Fed is widely expected to raise interest rates by at least 75 bps at its July 26-27 meeting to combat inflation, which quickened to a 40-year high of 9.1% in June. — Keisha B. Ta-asan