YIELDS ON the central bank’s term deposit facility (TDF) slipped on the back of higher bids as well as the slight recovery in oil prices.

Tenders for the seven-day papers offered by the Bangko Sentral ng Pilipinas (BSP) on Wednesday totalled P273.755 billion, higher than the P150 billion on the auction block and also going beyond the P242.052 billion in bids seen last week for the P120 billion up for grabs.

Yields sought by lenders ranged from 2.25% to 2.254%, a slightly narrower band compared to the 2.25% to 2.258% logged on May 20. With this, the average rate of the one-week term deposits settled at 2.2516%, slipping by 0.27 basis point from the 2.2543% logged a week ago.

“[The] auction results continue to reflect market preference for the BSP’s deposit facilities amid ample liquidity in the financial system,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

The TDF is the central bank’s primary tool to mop up excess liquidity from the financial system and to better guide market interest rates.

The 14- and 28-day day term deposit offerings remain suspended. The BSP halted offering term deposits in mid-March to support the banking system amid the imposition of the lockdown measures.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the lower yields came amid a continued increase in demand for the term deposits.

“This still manifests increased peso liquidity in the financial system looking for higher yielding outlets for short tenors such as the 7-day TDF,” he said in an e-mail.

Mr. Ricafort said although yields continued to go down, the decrease became more marginal due to the uptick in oil prices.

“The upward correction in global oil prices to new 2.5-month highs could have also slowed down the weekly decline in the 7-day TDF yield,” he added.

Global oil prices have seen some recovery after sliding to negative territory in April. This, as major oil producers stand by their commitment to cut their output by nearly 10 million barrels per day from May to June amid slower demand brought about by the pandemic.

As some economies start to gradually reopen, there has also been a slight rise in demand from major oil importers such as China.

Mr. Ricafort said the decrease in TDF yields also lessened as rates are already close to the April inflation print of 2.2%.

“Any level below the said inflation rate is already considered negative net interest rate return,” he said.

The April headline print was a five-month low and the slowest since the 1.3% seen in November last year.

The Philippine Statistics Authority will report the May inflation on June 5. — Luz Wendy T. Noble with Reuters