YIELDS on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) continued to rise on Tuesday due to expectations of more rate hikes next month.

Total bids for the central bank’s term deposits reached P233.469 billion, below the P330-billion offer for this week as well as the P278.916 billion in tenders seen last week for a P360-billion offer.

“The BSP decreased the volume offering in the TDF auction to P330 billion, from P360 billion last week. The total offer volume was allocated between the eight-day and 15-day tenors at P180 billion (from P200 billion) and P150 billion (from P160 billion), respectively,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Tuesday.

Both tenors were longer than the usual seven-day and 14-day deposits offered by the BSP due to a holiday on Nov. 30 in observance of Bonifacio Day.

Broken down, the eight-day papers fetched bids amounting to P111.737 billion, lower than the P180 billion auctioned off by the BSP, central bank data showed. This was also below the P142.235 billion in tenders logged in the previous auction, where the BSP offered P200 billion.

Banks asked for yields ranging from 5.49% to 6.025%, a higher margin compared with the 5.1% to 5.825% band seen a week ago. This caused the average rate of the one-week papers to rise by 25.93 basis points (bps) to 5.7514% from 5.4921%.

Meanwhile, demand for the 15-day term deposits amounted to P121.732 billion, below the P150-billion offering. This was also lower than P136.681 billion in tenders recorded a week ago for a P160-billion offer.

Accepted rates for the papers were from 5.6% to 6.175%, also higher than the 5.15% to 6% range seen on Nov. 23. With this, the average rate of the two-week deposit increased by 20.27 bps to 5.8662% from 5.6635% 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.

“The results of the TDF auction continue to reflect the pass-through of the recent BSP policy rate hike. In addition, the undersubscriptions could be attributed to eligible counterparties’ increased preference for cash in preparation for the holidays,” Mr. Dakila said.

“Going forward, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments,” he added. 

This month, the BSP delivered a large 75-bp rate hike to curb rising prices. The Monetary Board has so far raised borrowing costs by 300 bps since May to a near 14-year high of 5%.

October inflation rose to 7.7%. For the first 10 months, inflation averaged 5.4%, higher than the BSP’s 2-4% target but below its 5.8% forecast for the year.

Yields on the term deposits were higher amid expectations of another 50-bp rate hike from the US Federal Reserve on Dec. 13-14 and a matching increase from the BSP on Dec. 15 as part of its efforts to stabilize the peso and overall inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Felipe M. Medalla earlier said the central bank will need to keep on hiking policy rates as the Fed’s tightening cycle continues.

The US central bank has raised borrowing costs by 375 bps since March, bringing the fed funds rate at the 3.75-4% range. Meanwhile, the BSP has hiked benchmark interest rates by 300 bps since May, bringing the policy rate to 5%. — Keisha B. Ta-asan