YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits climbed on Wednesday after inflation hit a new 14-year high in January, which fueled bets of another large hike in benchmark interest rates this month.

Demand for the term deposit facility (TDF) of the central bank totaled P323.399 billion on Wednesday, above the P260-billion offering as well as the P277.823 billion in tenders recorded last week for a P270-billion offer.

Broken down, bids for the seven-day term deposits amounted to P175.765 billion, higher than the P140 billion auctioned off by the BSP. It also surpassed the P145.279 billion in tenders for a P150-billion offering seen a week earlier.

Accepted rates ranged from 6.2975% to 6.4%, slightly narrower than the 6.25% to 6.4375% margin seen in the prior auction. With this, the average rate of the one-week papers rose by 0.3538 basis point (bp) to 6.348% from 6.3445% previously.

Meanwhile, the 14-day papers attracted P147.634 billion in bids against the P120-billion offering. Demand was also up from the P132.544 billion in tenders seen on Feb. 1.

Banks asked for yields from 6.25% to 6.3995%, also slimmer than the 6.2% to 6.4175% band recorded a week earlier. This caused the average rate of the two-week term deposit to increase by 1.44 bps to 6.3654% from 6.351%.

The BSP has not auctioned off 28-day term deposits for more than two years 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 gather excess liquidity in the financial system and to better guide market rates.

“The results of the TDF auction reflected strong demand from eligible counterparties amid rate hike expectations from the BSP and the Bureau of the Treasury’s RTB-29 offering,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.

Faster January headline inflation caused TDF yields to go up, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Headline inflation accelerated to a new 14-year high of 8.7% in January as food prices continued to surge, causing renewed rate hike worries.

This was faster than the 8.1% print in December 2022 and 3% in the same month last year. It also marked the 10th consecutive month that inflation was above the BSP’s 2-4% target for the year.

This likewise surpassed the 7.6% median estimate in a BusinessWorld poll conducted last week and the 7.5% to 8.3% forecast range given by the central bank for the month.

BSP Governor Felipe M. Medalla earlier said the central bank could hike borrowing costs by 25 or 50 bps at their policy meeting on Feb. 16 as they need to anchor inflation expectations.

Following the inflation report, analysts now expect a 50-bp increase at the BSP’s review this month.

The Monetary Board last year raised interest rates by 350 bps, bringing its key rate to 5.5%.

Meanwhile, the government on Tuesday raised an initial P162.18 billion from the rate-setting auction for its offer of 5.5-year retail Treasury bonds (RTBs), the second under the Marcos administration.

Tenders for the offer hit P196.109 billion, or more than six times the P30 billion on the auction block. The RTBs fetched a coupon rate of 6.125%. — Keisha B. Ta-asan