YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits climbed on Wednesday as the offer was undersubscribed, with markets anticipating another rate hike by the central bank next week.

Demand for the term deposit facility (TDF) of the central bank totaled P335.344 billion on Wednesday, lower than the P350-billion offering as well as the P390.94 billion in tenders recorded last week.

Broken down, bids for the seven-day term deposits amounted to P196.194 billion, higher than the P180 billion auctioned off by the BSP. However, this was below the P218.96 billion in tenders seen a week earlier.

Accepted rates ranged from 3.38% to 3.6888%, narrower and higher than the 3.25% to 3.65% margin seen in the prior auction. With this, the average rate of the one-week paper rose by 5.34 basis points (bps) to 3.5623% from 3.5089% previously.

Meanwhile, the 14-day papers attracted P139.150 billion in bids, short of the BSP’s P170-billion offering. Demand was also lower than the P171.98 billion in tenders seen on Aug. 3.

Banks asked for yields from 3.48% to 3.75%, narrowing and rising from the 3.4% to 3.725% bond recorded last week. This caused the average rate of the two-week term deposit to increase by 10.39 bps to 3.6762% from 3.5723%.

The central bank has not auctioned off 28-day term deposits for more than a year to give way to its weekly offers 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 reveal that eligible participants are pricing in another policy rate hike by the BSP,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.

“At the same time, there is preference for the shorter tenor as the market anticipates the issuance of the retail Treasury bonds towards the end of the month. Looking ahead, the BSP’s monetary operations will continue to be guided by its assessment of the latest liquidity conditions and market developments,” Mr. Dakila added.

Yields on the term deposits were higher after the BSP chief signaled a 50-bp rate increase at the Monetary Board’s Aug. 18 meeting after inflation rose in July, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Felipe M. Medalla last week said the central bank may hike rates by 50 bps at the Monetary Board’s Aug. 18 meeting after headline inflation accelerated further in July.

The Monetary Board last month raised the benchmark interest rates by 75 bps in an off-cycle move, as it sought to contain inflationary pressures. It has raised rates by 125 bps so far since May.

Headline inflation quickened to 6.4% year on year in July, its fastest pace since October 2018, mainly due to soaring prices of food and higher transport costs.

For the first seven months, inflation averaged 4.7%, faster than the 4% seen in the same period a year ago and the central bank’s 2-4% target, but lower than its 5% forecast for the year. — Keisha B. Ta-asan