YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits climbed further on Wednesday as its offer went undersubscribed, with the market continuing to expect further monetary tightening.

Demand for the central bank’s term deposit facility (TDF) totaled P286.885 billion on Wednesday, lower than the P310-billion offering as well as the P307.145 billion in tenders for a P340-billion offer recorded last week.

Broken down, bids for the seven-day term deposits amounted to P154.362 billion, below the P170 billion auctioned off by the BSP. It also fell from the P170.994 billion in tenders seen a week earlier for a P200-billion offering.

Accepted rates ranged from 4.28% to 4.874%, higher than the 4.05% to 4.7199% margin seen in the prior auction. With this, the average rate of the one-week papers rose by 17.76 basis points (bps) to 4.6119% from 4.4343% previously.

Meanwhile, the 14-day papers attracted just P132.523 billion in bids against the P140-billion offering. Demand also went down from the P136.151 billion in tenders for the P140-billion offer on Oct. 5.

Banks asked for yields from 4.3% to 4.8445%, rising from the 4.15% to 4.75% band recorded a week earlier. This caused the average rate of the two-week term deposit to increase by 16.35 bps to 4.6492% from 4.4857%.

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 mop up excess liquidity from the financial system and to better guide market rates.

“The range was within expected levels as banks continue to expect higher policy rates moving forward and as cost of deposits increase as well. However, what is surprising is the awarded yield exceeding the interest rate corridor (IRC),” a trader said in a Viber message.

Following cumulative hikes worth 225 bps since May, the BSP’s policy rate or the rate on its overnight reverse repurchase facility is now at 4.25%. The rate on the overnight deposit facility — the floor of the IRC — is at 3.75%, while the overnight lending rate, which is the corridor’s ceiling, is at 4.75%

The Monetary Board’s next policy meeting is on Nov. 17.

Yields on the BSP’s term deposits went up as following faster September inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This, along with hawkish signals from the US Federal Reserve following stronger US jobs data, 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 P310 billion after last week’s P340 billion but higher versus P280 billion two weeks ago, partly causing the undersubscription this week.”

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% last month, 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 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.

Meanwhile, the Fed has raised key rates by 300 bps since March, and policy makers have said further hikes may be needed to rein in stubbornly high inflation. — Keisha B. Ta-asan