YIELDS on the central bank’s term deposits climbed on Wednesday as the offer was undersubscribed, with the market expecting more rate hikes following faster September headline inflation. 

Total bids for the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) reached P307.145 billion, lower than the P340-billion offer. Still, this was above the P296.495 billion in tenders for a P280-billion offering last week.

Broken down, the seven-day papers fetched bids amounting to P170.994 billion, below the P200-billion auctioned off by the central bank. This was also slightly lower than the P171.205 billion in tenders logged in the previous auction, where the BSP offered P170 billion.

Banks asked for yields ranging from 4.05% to 4.7199%, a higher margin compared with the 3.82% to 4.6% band seen a week ago. This caused the average rate of the one-week papers to rise by 13.84 basis points (bps) to 4.4343% from 4.2959%.

Meanwhile, demand for the 14-day term deposits amounted to just P136.151 billion versus the P140-billion offering. Still, this surpassed the P125.290 billion in tenders for the P110-billion offer on Sept. 28.

Accepted rates for the papers were from 4.15% to 4.75%, wider than the 4.1% to 4.43% range seen last week. With this, the average rate of the two-week papers went up by 14.29 bps to 4.4857% from 4.3428% in the previous week’s auction.

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

The term deposits 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.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that TDF yields went up following the release of latest inflation data, which showed the consumer price index reached a fresh peak in September.

This, along with hawkish signals from the US Federal Reserve, bolstered market expectations of further monetary tightening by the BSP, Mr. Ricafort said.

He added that the auction result “indicates increased siphoning of excess pesos from the financial system with the bigger offering amount of P340 billion after last week’s P280 billion, partly causing the undersubscription this week.”

Mr. Ricafort said less supply of the local currency in the financial system could help stabilize the peso.

Headline inflation picked up to its fastest pace in more than 13 years in September due to higher food costs.

The consumer price index was at 6.9% in September, up from 6.3% in August and 4.2% in the same month last year. It matched the 6.9% print in October 2018 and was the fastest since the 7.2% pace logged in February 2009.

The September print fell within the 6.6-7.4% forecast given by the BSP for the month and marked the sixth straight month that inflation breached the central bank’s 2-4% target for the year.

For the first nine months, headline inflation averaged 5.1%, faster than the 4% seen in the same period last year but below the BSP’s 5.6% forecast for 2022.

The Monetary Board has so far raised borrowing costs by 225 bps since May. Its next policy-setting meeting is scheduled for Nov. 17.

Meanwhile, the US central bank has raised borrowing costs by 300 bps since March, with Fed chief Jerome H. Powell earlier saying they are strongly committed to bringing down inflation and may need to keep rates high for longer to achieve this goal. — Keisha B. Ta-asan