YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits climbed further on Wednesday following hawkish signals from the central bank chief and after June inflation hit a near four-year high in June.

Demand for the term deposit facility (TDF) of the central bank totaled P479.514 billion on Wednesday, above the P300-billion offering as well as the P330.635 billion in tenders recorded last week.

Broken down, bids for the seven-day term deposits amounted to P232.213 billion, higher than the P150 billion auctioned off by the BSP. It also surpassed the P167.585 billion in tenders seen a week earlier.

Accepted rates ranged from 2.58% to 2.725%, slightly narrower than the 2.5% to 2.75% margin seen in the prior auction. With this, the average rate of the one-week paper rose by 2.9 basis points (bps) to 2.6937% from 2.6647% previously.

Meanwhile, the 14-day papers attracted P247.301 billion in bids against the P150-billion offering. Demand was also up from the P163.05 billion in tenders seen on June 29.

Banks asked for yields from 2.6253% to 2.7588%, also slimmer than the 2.5% to 2.7999% band recorded a week earlier. This caused the average rate of the two-week term deposit to increase by 1.97 bps to 2.7299% from 2.7102%.

The BSP has not auctioned off 28-day term deposits for more than a year to give way to its weekly offerings 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.

Faster June headline inflation and hawkish signals from BSP Governor Felipe M. Medalla caused TDF yields to go up, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Yields also rose as the peso continued to weaken versus the dollar, which could add to inflationary pressures, Mr. Ricafort said.

Inflation picked up to its fastest level in nearly four years in June, the Philippine Statistics Authority (PSA) said on Tuesday.

Preliminary data from the PSA showed the consumer price index accelerated to 6.1% year on year in June, exceeding the BSP’s 2-4% target for a third straight month. This was faster than the 5.4% in May and 3.7% a year ago.

The June print matched the pace recorded in November 2018 and was the fastest growth in 44 months or since the 6.9% print in October 2018.

It brought the year-to-date average to 4.4%, higher than the 4% a year ago. This is still below the BSP’s 5% average inflation forecast for this year.

On Tuesday, Mr. Medalla said the central bank may raise policy rates by at least 100 bps more in the rest of its meetings for the year to bring cumulative hikes for 2022 to 150 bps, as the policy rate needs to be higher than the 3% midpoint of their 2-4% inflation target.

He also said an increase of at least 25 bps is guaranteed at the Monetary Board’s next meeting on Aug. 18, but he is also open to a bigger increase of up to 50 bps to temper rising inflation.

The Monetary Board has raised benchmark interest rates by a total of 50 bps so far this year, via 25-bp hikes at its May 19 and June 23 meetings, bringing the policy rate to 2.5%.

It has four more meetings scheduled for the year to be held on Aug. 18, Sept. 22, Nov. 17 and Dec. 15.

Mr. Medalla on Tuesday said they are “a lot more concerned” about the impact of the peso’s decline against the dollar on inflation, adding that every 1% depreciation in the local unit adds about 0.05-0.1% to the inflation rate.

The peso closed at P55.67 per dollar on Wednesday, down by 44 centavos from its P55.23 finish on Tuesday, Bankers Association of the Philippines data showed.  For the year so far, the peso has weakened by P4.23 or 8.29% from its Dec. 31, 2021 close of P51 per dollar. — K.B. Ta-asan