Yields on the central bank’s term deposits continued to go up on Wednesday after the Bangko Sentral ng Pilipinas’ (BSP) decision to hike benchmark rates last week to help temper rising inflation.

Demand for the BSP’s term deposit facility (TDF) amounted to P333.635 billion, more than the P290-billion offering but below the P347.602 billion in bids seen a week earlier.

Broken down, the seven-day papers attracted bids amounting to P167.585 billion, surpassing the P150 billion auctioned off by the central bank on Wednesday. However, this was lower than the P180.132 billion in tenders logged in the previous auction.

Lenders asked for yields ranging from 2.5% to 2.75%, narrower than the 2.3% to 2.7% band seen a week ago. This caused the average rate of the one-week papers to increase by 11.5 basis points (bps) to 2.6647% from 2.5472% in the prior auction.

Meanwhile, the 14-day term deposits fetched bids worth P163.05 billion, higher than the P140 billion auctioned off by the BSP but lower than P167.47 billion in tenders seen at last week’s auction.

Accepted rates were from 2.5% to 2.7999%, a slightly higher range compared with the 2.49% to 2.75% band a week ago. With this, the average rate of the two-week deposits increased by 3.48 bps to 2.7102% from 2.6754% previously.

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

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

Term deposit yields were higher again this week after the BSP last week raised benchmark interest rates anew, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Ricafort said investors wanted higher rates due to inflation risks, as wage and jeepney fare hikes approved recently could lead to higher prices of goods and services.

The BSP last week hiked benchmark interest rates by 25 bps for a second straight meeting to cool rising prices and continued to signal gradual normalization, even as it said it is prepared “to take all necessary policy action” to bring inflation within its target over the medium term.

The central bank raised its average inflation forecast for this year to 5% from 4.6% previously, well above its 2-4% target. For 2023, the BSP now sees inflation averaging 4.2% from 3.9% previously and then slowing to 3.3% in 2024, back within target.

Headline inflation stood at 5.4% in May, the fastest in three and a half years, amid the continued rise in food and fuel prices.

The recent approval of hikes in the daily minimum wage in all regions and in the minimum jeepney fare in Metro Manila, Central Luzon, Calabarzon and Mimaropa has added to already mounting inflation pressures.

Mr. Ricafort said TDF rates also rose due to the US Federal Reserve’s hawkish signals.

A week after hiking rates by 75 bps, which was the biggest increase since 1994, Fed Chair Jerome H. Powell told a US Congress hearing on Thursday that the US central bank is committed to bringing down inflation despite risks of a downturn, but said it is not trying to engineer a recession.

Markets are pricing in another 75-bp hike at the US central bank’s July meeting as several Fed officials have said they would support more aggressive hikes as inflation remains high. — Keisha B. Ta-asan