YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits inched higher as the offer was undersubscribed after the central bank said it could hike rates earlier than planned and amid risk-off sentiment ahead of the national elections.

Demand for the term deposit facility (TDF) of the central bank amounted to P276.324 billion, below the P320-billion offer and the P336.743 billion in tenders recorded last week.

Broken down, bids for the seven-day term deposits amounted to P102.146 billion, lower than the P140 billion auctioned off by the BSP. It also failed to beat the P152.652 billion in tenders a week earlier.   

Accepted rates ranged from 1.85% to 2.18%, slightly narrower than the 1.85% to 2.19% margin in the prior auction. With this, the average rate of the one-week papers rose by 1.57 basis points (bps) to 1.9595% from 1.9438% previously.

Meanwhile, the 14-day papers attracted just P174.178 billion in bids against the P180-billion offering. Demand was also down from the P184.091 billion in tenders seen on April 20.

Banks asked for yields from 1.84% to 2.39%, inching up from the 1.5% to 2.19% band a week earlier. This caused the average rate of the two-week term deposit to increase by 4.35 bps to 1.968% from 1.9245%.

The BSP 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 TDF and the 28-day bills are used by the BSP to gather excess liquidity in the financial system and to better guide market rates.

The BSP’s hawkish shift caused yields to inch up, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Benjamin E. Diokno said in an interview with Bloomberg Television that the central bank may consider raising benchmark interest rates at its June 23 meeting.

Policy makers may wait for another cycle after the May 19 meeting if the economy grew around 6%-7% in the first quarter, he said.

The BSP chief previously said the central bank may begin rate hikes in the second half of this year, and that an increase to 2.5%-2.75% as part of a normalization process is “reasonable.”

“We can afford to wait as to what will be the move of the Fed in the next two meetings,” Mr. Diokno said during Monday’s interview. “Right now, there is no evidence of second-round effects on the demand side.”

Mr. Ricafort added that investors are pricing in uncertainties due to the upcoming polls. The national elections will be held on Monday, May 9.

Former Senator Ferdinand R. Marcos, Jr., who faces tax evasion allegations, remains the frontrunner based on surveys. Meanwhile, a Bloomberg poll of analysts showed analysts and investors preferred Vice-President Maria Leonor G. Robredo, the second leading candidate, as the country’s next chief executive. — Luz Wendy T. Noble