YIELDS on the term deposits of the central bank climbed on Wednesday after the regulator raised benchmark interest rates last week and on lingering inflation concerns here and abroad.
The term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) fetched bids amounting to P301.034 billion on Wednesday, surpassing the P280-billion offering but lower than the P327.962 billion in tenders logged in the previous auction.
Broken down, tenders for the seven-day deposits amounted to P114.843 billion, lower than the P130 billion auctioned off by the BSP as well as the P146.17 billion in tenders a week earlier.
Accepted rates were from 1.97% to 2.67%, a wider and higher band versus 1.9% to 2.125% last week. This caused the average rate of the one-week term deposits to rise by 21.39 basis points (bps) to 2.1962% from 1.9823% previously.
Meanwhile, tenders for the 14-day papers reached P186.191 billion, higher than the P150-billion offering and the P181.792 billion in bids seen a week ago.
Lenders asked for yields ranging from 2% to 2.329%, rising from the 1.95% to 2.2% margin recorded previously. This caused the average rate of the two-week deposits to increase by 14.37 bps to 2.2369% from the 2.0932% recorded in the previous auction.
The BSP has not auctioned 28-day term deposits for more than a year to give way to its weekly auctions of securities with the same tenor.
Both the TDF and 28-day bills are used by the central bank to gather excess liquidity in the financial system and to better guide market rates.
“The results of the TDF auction continue to show that liquidity in the financial system remains ample,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.
“Looking ahead, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments,” Mr. Dakila added.
Term deposit yields were higher after the BSP’s decision to hike borrowing costs last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message, with the market expecting another increase next month due to the risk of second-round inflation effects.
Last week, the BSP raised benchmark interest rates for the first time since 2018 to tame rising inflation.
The Monetary Board on Thursday increased the key policy rate by 25 bps to 2.25%. Accordingly, interest rates on the BSP’s overnight deposit and lending facilities were also hiked by 25 bps to 1.75% and 2.75%, respectively.
At the meeting, the central bank upwardly revised its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, exceeding the 2-4% target band. For 2023, the BSP’s inflation forecast was hiked to 3.9% from 3.6% previously.
Inflation climbed to 4.9% in April, the highest in more than three years, as oil and commodity prices soared amid the Russia-Ukraine war and supply chain disruptions.
The start of the BSP’s tightening cycle came a week after the release of data showing gross domestic product expanded by a better-than-expected 8.3% in the first quarter.
The BSP Monetary Board’s next policy meeting is on June 23.
Continued hawkish signals from US Federal Reserve officials also caused TDF yields to increase, Mr. Ricafort said.
US central bankers broadly back two more big interest rate hikes in June and July, but what happens after is a matter of intense internal debate that turns in large part on differing views of how price pressures will play out in months ahead, Reuters reported.
To Atlanta Fed President Raphael Bostic, once the Federal Reserve has delivered half-of-a-percentage point rate hikes as Chair Jerome Powell has signaled, “a pause in September might make sense.”
“I think a lot of it will depend on the ground dynamics that we are starting to see” both of the inflation the Fed is trying to contain and the impact of higher interest rates on the economy, he told the Rotary Club of Atlanta on Monday.
While there is a risk the central bank may have to be more aggressive, he said, “I’m an optimist and I’m assuming inflation will have started to definitively move” lower by then.
Speaking later in the day at a separate event, Kansas City Fed President Esther George painted a murkier picture, enumerating the many factors like Russia’s war in Ukraine and China’s COVID-19 lockdowns that could play out to either intensify or relieve inflation pressures.
The challenge for the Fed is to tighten policy enough to curb inflation that has raced to a 40-year-high, but not so much it throws the economy into recession.
Both policymakers nodded to the tricky task ahead, as concerns mount about a global growth slowdown and about how resilient the US economy will be to rising rates and falling equity values, among other adjustments. — K.B. Ta-asan with Reuters