Term deposit yields decline as market expects more BSP cuts

TERM DEPOSIT YIELDS went down on Wednesday on expectations of further rate cuts from the Bangko Sentral ng Pilipinas (BSP) after it resumed its easing cycle this month.

The BSP’s term deposit facility (TDF) attracted bids amounting to P162.305 billion on Wednesday, above the P140 billion on the auction block but lower than the P198.961 billion in tenders seen a week ago for a P160-billion of-fer. The central bank awarded P14 billion in deposits as planned.

Broken down, tenders for the seven-day papers reached P78.059 billion, higher than the P70 billion auctioned off by the central bank but below the P123.033 billion in bids for the P80 billion offered the previous week. The BSP made a full P70-billion award of the tenor.

Accepted rates ranged from 5.45% to 5.585%, wider and lower than the 5.5% to 5.6% band seen a week ago. This caused the average rate of the one-week deposits to decline by 2.37 basis points (bps) to 5.5522% from 5.5759% previously.

Meanwhile, bids for the 14-day term deposits amounted to P84.246 billion, above the P70-billion offering and the P75.928 billion in tenders for the P80 billion auctioned off a week ago. The central bank awarded P70 billion in two-week papers as planned.

Banks asked for yields ranging from 5.52% to 5.7%, narrowing from the 5.5% to 5.76% margin recorded a week ago. With this, the average rate for the two-week deposits fell by 1.57 bps to 5.6338% from the 5.6495% logged in the prior auction.

The central bank has not auctioned off 28-day term deposits for more than four years to give way to its weekly offerings of securities with the same tenor.

The term deposits and the BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates.

“The BSP TDF average auction yields were again slightly lower for the third straight week after the widely expected local policy rate cut on April 10 and the recent dovish signals from local monetary authorities on possible future rate cuts,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Monetary Board on April 10 resumed its rate-cutting cycle, reducing benchmark borrowing costs by 25 bps to bring the policy rate to 5.5%.

BSP Governor Eli M. Remolona, Jr. said they will likely continue cutting rates further this year in “baby steps” or increments of 25 bps.

There are four more Monetary Board policy meetings this year, with the next slated for June 19.

Mr. Ricafort added that TDF yields dropped amid lower global crude oil prices and a stronger peso recently, which could help ease inflationary pressures and justify further monetary easing moving forward.

Brent crude futures climbed 55 cents or 0.8% to $67.99 a barrel at 0400 GMT, while US West Texas Intermediate crude was up 54 cents or 0.9% at $64.21 a barrel, Reuters reported.

US crude oil inventories fell by around 4.6 million barrels last week, market sources said on Tuesday citing American Petroleum Institute data.

US government data on oil stockpiles are due at 10:30 a.m. ET (1430 GMT) on Wednesday. Analysts on average estimated an 800,000-barrel decline in US crude oil stocks last week, a Reuters poll showed.

Trade tariffs have weighed on crude futures on investor concern about their potential to slow global economic growth.

Meanwhile, the peso has recently been trading at the P56 level as growing trade war concerns have pummelled the US dollar. — Luisa Maria Jacinta C. Jocson with Reuters