Home Banking & Finance Yields on term deposits decline

Yields on term deposits decline

YIELDS on the central bank’s term deposits dropped on Wednesday on expectations of slower economic activity amid the lockdown. — BW FILE PHOTO

YIELDS on the central bank’s term deposits slipped on Wednesday as some restrictions remain in place, which could slow down economic activity and bring down inflationary pressures.

Total tenders for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) amounted to P634.779 billion on Wednesday, higher than the P490-billion offer but lower than the P651.115 billion in bids recorded in previous auction.

“The results in the TDF auction reflects the continued normalization in market participants’ sentiment on liquidity conditions, amid ample supply in the financial system,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

Broken down, demand for the seven-day papers reached P181.415 billion, surpassing the P140-billion offer but lower than the P191.731 billion in tenders seen a week ago.

Accepted rates for the one-week term deposits ranged from 1.7% to 1.8%, a narrower band compared with the 1.7% to 1.825% logged a week earlier. This brought the average rate of the tenor down by 1.05 basis points (bps) to 1.7737% from 1.7842% previously.

Meanwhile, tenders for the 14-day deposits amounted to P453.364 billion, going beyond the P350 billion on the auction block but down from the P459.384 billion in bids last week.

Lenders asked for yields ranging from 1.78% to 1.83%, a tighter margin compared with the 1.75% to 1.8625% seen the previous week. This caused the average rate of the two-week tenor to 1.8097%, lower by 3.34 bps from the 1.8431% a week ago.

The BSP did not offer 28-day deposits for the 25th straight auction to give way to its weekly auctions of bills with the same tenor.

The term deposits and the BSP bills are instruments used by the central bank to mop up excess liquidity in the financial system and guide market interest rates.

TDF yields went down as Metro Manila and surrounding provinces Cavite, Laguna, Rizal, and Bulacan remain under tight restriction measures, affecting businesses and, consequently, prospects for economic recovery.

“Though eased from the lockdown, the MECQ (modified enhanced community quarantine) in NCR (National Capital Region) Plus until April 30 could still lead to a slowdown in economic recovery and could reduce inflationary pressures, especially on the demand side,” Mr. Ricafort said in a text message.

Under MECQ, only authorized persons working outside their residence can use public transportation. Also, while businesses can already open fully under MECQ, enterprises related to entertainment and personal care services are still not allowed to reopen.

Meanwhile, headline inflation in March slowed to 4.5% from 4.7% in February, the Philippine Statistics Authority reported last week. This was mainly due to the slower increase in food prices.

Despite this, March marked the third straight month that the headline print went beyond the central bank’s 2-4% target as supply issues caused a hike in prices of meat products.

The central bank expects headline inflation to average 4.2% this year before easing to 2.8% in 2022. BSP officials have said the inflation path is likely to ease below the midpoint of the 2-4% target towards the fourth quarter. — Luz Wendy T. Noble