Yields on term deposits drop on BSP cut hopes

TERM DEPOSIT yields ended lower on Wednesday on expectations of further policy easing by the Bangko Sentral ng Pilipinas (BSP) after inflation cooled to an over five-year low last month.

The central bank’s term deposit facility (TDF) attracted bids amounting to P137.272 billion on Wednesday, above the P90 billion placed on the auction block and the P91.654 billion seen a week ago for a P100-billion offer. The BSP made a full P90-billion award of the papers as both tenors were oversubscribed.

Broken down, tenders for the seven-day papers reached P75.514 billion on Wednesday, higher than the P50-billion auctioned off by the central bank and above the P42.526 billion in bids for the same offer volume in the previous week. The central bank fully awarded the one-week papers.

Accepted yields ranged from 5.49% to 5.5575%, a narrower band compared with the 5.455% to 5.6% recorded a week ago. This caused the average rate of the one-week deposits to decline by 2.07 basis points (bps) to 5.5435% from 5.5642% previously.

Meanwhile, bids for the 14-day term deposits stood at P61.758 billion on Wednesday, higher than the P40-billion offering and the P49.128 billion in tenders for the P50 billion placed on the auction block last week. The BSP awarded P40 billion in two-week papers as planned.

Banks asked for rates from 5.5% to 5.625%, slightly lower than the 5.53% to 5.7% margin recorded a week ago. With this, the average rate for the two-week deposits declined by 2.92 bps to 5.5884% from the 5.6176% logged in the prior auction.

The BSP 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.

TDF yields declined on Wednesday amid dovish signals from the BSP chief following the April inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Philippine central bank is open to cutting its key interest rate by a further 75 bps for the rest of the year as inflation continued to ease, according to BSP Governor Eli M. Remolona, Jr., Bloomberg reported.

“On the table, yes,” Mr. Remolona said in a mobile-phone message on Wednesday when asked if it’s possible for the Bangko Sentral ng Pilipinas to reduce the benchmark rate by 75 bps more this year after inflation further slowed in April.

The Monetary Board last month resumed its policy easing cycle after an unexpected pause in February, slashing benchmark borrowing costs by 25 bps to bring the target reverse repurchase rate to 5.5%.

Philippine headline inflation sharply decelerated to an over five-year low of 1.4% in April from 1.8% in March and 3.8% in the same month a year ago. This was within the BSP’s 1.3% to 2.1% forecast for the month and well below the 1.8% median estimate in a BusinessWorld poll of 14 analysts.

For the first four months, the CPI averaged 2%, at the low end of the BSP’s 2-4% annual target. — Aaron Michael C. Sy with Bloomberg