TDF yields climb on rate hike bets
YIELDS on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) climbed on Wednesday as the offer was undersubscribed due to rate hike signals from the central bank chief.
Total bids for the central bank’s term deposits reached just P261.287 billion, below the P380-billion offer as well as the P295.251 billion in tenders for a P280-billion offering last week.
Broken down, the seven-day papers fetched bids worth P144.578 billion, lower than the P220-billion auctioned off by the BSP. This was also slightly below the P146.065 billion in tenders with a P170-billion offer logged in the previous auction.
Banks asked for yields ranging from 4.8% to 5.15%, a higher margin compared with the 4.65% to 5% band seen a week ago. This caused the average rate of the one-week paper to rise by 14.23 basis points (bps) to 4.9569% from 4.8146%.
Meanwhile, demand for the 14-day term deposits amounted to just P116.709 billion versus the P160-billion offering as well as the P149.186 billion in tenders for the P110-billion offer recorded a week ago.
Accepted rates for the papers were from 4.75% to 5.35%, wider and higher than the 4.55% to 5% range seen on Oct. 26. With this, the average rate of the two-week paper went up by 15.23 bps to 5.0567% from 4.9044% in the previous week’s auction.
The central bank has not auctioned 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.
“The results of the TDF auction reflect the weaker demand for the BSP deposit facility following the All Saints’ Day holidays as well as the lower excess liquidity in the short term,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.
“Looking ahead, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments,” he added.
Term deposit yields were higher after the BSP chief signalled that the Monetary Board could to deliver another large rate increase at their Nov. 17 meeting to tame rising inflation, 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 could match the Federal Reserve point by point to support the peso and prevent it from further adding to inflation.
He said the Monetary Board could raise benchmark interest rates by 75 bps at their Nov. 17 meeting if the Fed delivers a hike of the same magnitude at their Nov. 1-2 review.
The BSP has so far raised key rates by 225 bps since May. Meanwhile, the Fed has hiked borrowing costs by 300 bps since March.
The central bank sees inflation to have settled within 7.1% to 7.9% in October, driven by rising food prices, higher transport fares and the peso’s depreciation.
If realized, October inflation would exceed the central bank’s 2-4% target for the seventh straight month. This would also be faster than the 6.9% seen in September and 4% in the same month last year, as well as the BSP’s 5.6% forecast for 2022.
The upper end of the BSP’s inflation forecast or 7.9% would be the quickest in over 14 years or since the 9.1% print in November 2008.
A BusinessWorld poll of 14 analysts conducted last week yielded a median estimate of 7.2% for annual inflation in October.
The Philippine Statistics Authority will release October inflation data on Nov. 4. — Keisha B. Ta-asan
