Term deposit yields rise ahead of BSP decision

YIELDS on the term deposits auctioned off by the Bangko Sentral ng Pilipinas (BSP) on Wednesday climbed, with investors positioning ahead of an expected hike by the central bank on Thursday and amid the peso’s decline against the dollar.

Bids for the term deposit facility (TDF) of the central bank amounted to P347.602 billion on Wednesday, above the P290-billion offer but lower than the P364.664 billion in tenders last week.

Broken down, the seven-day papers fetched bids amounting to P180.132 billion, surpassing the P150 billion auctioned off by the central bank on Wednesday. However, this was lower than the P188.484 billion in tenders logged in the previous auction.

Banks asked for yields ranging from 2.3% to 2.7%, wider and higher than the 2.1-2.5% band seen a week ago. This caused the average rate of the one-week paper to increase by 13.09 basis points (bps) to 2.5472% from 2.4163%.

Meanwhile, demand for the 14-day term deposits amounted to P167.47 billion on Wednesday, surpassing the P140-billion offering. However, this was also lower than the P176.18 billion in tenders recorded a week ago.

Accepted rates for the papers were from 2.49% to 2.75%, narrower than the 2.25% to 2.7205% range seen on June 15. With this, the average rate of the two-week paper went up by 15.76 bps to 2.6754% from 2.5178% in the previous week’s auction. 

The BSP has not offered 28-day term deposits for more than a year to give way to its weekly auctions of short-term bills with the same tenor.

The term deposit facility and the one-month securities are used by the BSP to gather excess liquidity in the financial system and to better guide market rates.

TDF yields rose ahead of an expected rate hike by the BSP on Thursday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The central bank is widely expected to raise borrowing costs by at least 25 bps at its June 23 policy meeting to temper rising prices.

A BusinessWorld poll last week showed 15 out of 16 analysts anticipate a rate hike at the June 23 meeting. Nine analysts expect the Monetary Board to raise rates by 25 bps, while six see an increase of 50 bps.

On Monday, outgoing BSP Governor Benjamin E. Diokno and his successor Monetary Board member Felipe M. Medalla affirmed their intent to raise rates gradually, both signaling a 25-bp hike this week despite market expectations of a 50-bp increase.

The BSP began its tightening cycle with a 25-bp hike on May 19 to help stem rising prices as headline inflation already reached 5.4% in May, higher than its 4.6% forecast and 2-4% target for the year. Year to date, inflation has averaged 4.1%.

TDF yields also climbed due to the peso’s weakness against the dollar, Mr. Ricafort said.

The local unit closed at P54.47 per dollar on Wednesday, down by 20.5 centavos from its P54.265 finish on Tuesday, based on data from the Bankers Association of the Philippines.

This is the peso’s weakest finish in over 16 years or since its P54.74 close on Nov. 21, 2005. — Keisha B. Ta-asan