YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits climbed on Wednesday amid hawkish signals from the central bank due to risks to the inflation outlook.

Demand for the term deposit facility (TDF) of the central bank totaled P280.088 billion on Wednesday, higher than the P280-billion offering as well as the P258.591 billion in tenders recorded last week for a P230-billion offer.

Broken down, bids for the seven-day term deposits amounted to P151.358 billion, higher than the P150 billion auctioned off by the BSP. It also surpassed the P135.050 billion in tenders for a P130-billion offering seen a week earlier.

Accepted rates ranged from 6.559% to 6.61%, slightly higher than the 6.55% to 6.6075% margin seen in the prior auction. With this, the average rate of the one-week papers rose by 0.82 basis point (bp) to 6.5888% from 6.5806% previously.

Meanwhile, the 14-day papers attracted P128.73 billion in bids against the P130-billion offering, up from the P123.541 billion in tenders seen on July 26 for a P100-billion offer.

Banks asked for yields from 6.55% to 6.62%, higher than the 6.5%-6.609% band recorded a week earlier. This caused the average rate of the two-week term deposit to increase by 0.39 bp to 6.5903% from 6.5864%.

The central bank 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.

Yields on the term deposits were higher amid hawkish signals from central bank officials as inflation risks linger, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona last week said it is too early to “declare victory” against inflation, even if it is on its way to the 2-4% target band.

Mr. Remolona said they are ready to resume tightening if needed amid growing threats to the inflation outlook.

The central bank needs to ensure that the downtrend in inflation is “more permanent,” amid persistent upside risks arising from the El Niño weather event and Russia’s invasion of Ukraine, Monetary Board member Bruce J. Tolentino also said last week.

The BSP expects inflation to return to the 2-4% target range by the fourth quarter.

The Monetary Board hiked borrowing costs by a total of 425 bps from May 2022 to March 2023, bringing the key rate to 6.25%.

It will next meet on Aug. 17 to review policy.

Rising rice prices recently due to the agriculture damage brought by typhoons could also lead to some pickup in inflation or dampen the easing trend, Mr. Ricafort said. — K.B. Ta-asan