Term deposit yields mixed ahead of Fed decision
YIELDS ON THE central bank’s term deposits were mixed on Wednesday amid market expectations that the US Federal Reserve’s policy will remain supportive of the economy and after the International Monetary Fund (IMF) lowered its growth outlook for the Philippines.
Total bids for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) reached P655.826 billion on Wednesday, surpassing the P530 billion on offer and the P599.126 billion in tenders seen a week ago.
Broken down, demand for the one-week papers amounted to P212.281 billion, well above the P140 billion offered by the BSP and the P140.165 billion in bids logged during the previous offering.
Banks asked for yields ranging from 1.7% to 1.7999%, a slimmer band compared with the 1.7% to 2.49% seen last week. With this, the average rate for the seven-day term deposits dropped by 1.18 basis points (bps) to 1.7464% from 1.7582% previously.
Meanwhile, bids for the 14-day term deposits amounted to P443.545 billion on Wednesday, higher than the P390-billion offering but failing to beat the P458.961 billion in tenders recorded for the June 8 auction.
Accepted rates for the tenor ranged from 1.7125% to 1.85%, a narrower margin versus the 1.65% to 1.88% band seen last week. This caused the average rate of the two-week papers to rise by 1.68 bps to 1.8118% from the 1.795% quoted in the previous offering.
The central bank did not offer 28-day term deposits for the 34th straight week to give way to its weekly offerings of bills with the same tenor.
The term deposits and the short-term bills are used by the BSP to gather excess liquidity in the financial system and to better guide market rates.
Yields on the term deposits moved sideways on Wednesday as the market was waiting for the outcome of the Fed’s policy review later in the day, where it was widely expected to keep borrowing costs low, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.
The Federal Open Market Committee was set to conclude its two-day meeting overnight. While it was expected to keep its interest rates near zero, the market was watching out for hints on when the US central bank would start tapering its bond-buying program.
Another factor that affected market sentiment on Wednesday was the International Monetary Fund’s (IMF) lower 2021 economic growth forecast for the Philippines, Mr. Ricafort said.
The Washington-based multilateral lender on Wednesday said it expects the Philippine economy to expand by 5.4% this year, a less optimistic outlook compared with the 6.9% projection it gave in April. This is also lower than the government’s 6-7% growth target.
“The slowing in the recovery in the first half is mostly due to the second wave of the pandemic which peaked in April and necessitated some stricter quarantine measures and has also weighed on confidence. But now, hopefully, the second wave should be on the way out,” said Thomas Helbling, division chief of IMF’s Asia Pacific Department.
The World Bank last week also slashed its growth outlook for the country to 4.7% from the 5.5% it gave in March. — Luz Wendy T. Noble
