Yields on BSP’s term deposits rise on rate hike expectations

TERM DEPOSIT yields climbed on Wednesday as the peso’s continued depreciation could prompt the Bangko Sentral ng Pilipinas (BSP) to hike interest rates further.

Demand for the BSP’s term deposit facility (TDF) totaled P242.146 billion on Wednesday, higher than the P200 billion on the auction block. This was below the P317.604 billion in bids logged last week for a P240-billion offer.

Broken down, the seven-day term deposits attracted tenders amounting to P126.957 billion, above the BSP’s P120-billion offering. However, this was below the P195.304 billion in bids for a P140-billion offer seen the prior week.

Rates accepted by the central bank for the seven-day papers ranged from 3.7345% to 3.9999%, wider and higher than the 3.7% to 3.85% range logged the previous week. This brought the average rate for the tenor to 3.8357%, up by 3.06 basis points (bps) from the 3.8051% seen on Aug. 31.

For the 14-day deposits, bids hit P115.189 billion, surpassing the P80 billion on the auction block. However, this was lower than the P122.30 billion in demand for the P100-billion offering seen a week ago.

Accepted yields were from 3.75% to 3.8699%, narrower compared with the 3.7% to 3.9% margin recorded the previous week. This brought the average rate of the two-week deposit to 3.8465%, inching up by 0.11 bp from the 3.8454% recorded the prior week.

The central bank 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 term deposits and the BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates.

Yields on the BSP’s term deposits were higher as the peso’s continued descent to record-low levels could give the central bank a reason to hike borrowing costs further, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The peso on Wednesday logged a new all-time low versus the dollar for a fourth straight session, closing at P57.135, depreciating by 13.5 centavos from its P57 finish on Tuesday, Bankers Association of the Philippines data showed.

The local unit tested fresh lows throughout the day, with its intraday worst at P57.33 and its strongest showing at just P57.

Year to date, the peso has weakened by 12.02% or P6.135 from its P51-per-dollar close on Dec. 31, 2021, putting it among Asia’s worst performers, along with the Japanese yen, South Korean won and Taiwanese dollar.

BSP Governor Felipe M. Medalla said in an economic briefing in Singapore on Wednesday that the central bank could hike rates further as the US Federal Reserve continues to tighten policy aggressively, which has propped up the dollar.

The BSP on Aug. 18 raised benchmark interest rates by 50 bps and signaled it has room for more hikes as it battles high inflation. The Monetary Board has increased rates by a total of 175 bps since May.

For its part, the Fed has hiked borrowing costs by 225 bps since March, including two 75-bp increases in June and July.

“We are confident we have enough room. The economy’s strong enough, the banking system is strong enough and the payment system is also improving very fast,” Mr. Medalla said. “Whatever happens we have the capacity to make sure that we will have…a target consistent inflation path.” — K.B. Ta-asan