Seven-day term deposits fetch lower yields as inflation data bolster easing bets

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) seven-day term deposits dropped on Wednesday as the offer drew strong demand on slower-than-expected inflation in October, which could bolster the case for further policy easing.

Total bids for the central bank’s seven-day deposits stood at P96.642 billion, above the P80-billion offer and the P74.76 billion in tenders seen for the tenor last week for the P60 billion placed on the auction block. The BSP fully awarded its offering.

Banks asked for rates ranging from 4.5% to 4.8%, wider and lower than the 4.79% to 4.825% band last week. This caused the average rate of the one-week deposits to fall by 3.13 basis points (bps) to 4.776% from 4.8073%.

The BSP did not offer 14-day papers at this week’s term deposit facility (TDF) auction. This was the first time since June 2020 that it only auctioned off the shortest tenor.

Last week, including the two-week deposits, total bids for the facility reached P142.886 billion, above the P130 billion auctioned off. However, the 14-day tenor went undersubscribed at that auction, with bids amounting to only P68.126 billion, below the P70-billion offer.

Meanwhile, the BSP has not auctioned off 28-day term deposits since October 2020 to give way to its weekly offerings of securities with the same tenor.

The TDF and BSP bills are used by the central bank to mop up excess liquidity in the financial system and better guide market rates towards the policy rate.

Earlier this week, the central bank also did not offer the longer two-month tenor at its auction of BSP securities and instead increased the volume of 28-day bills it placed on the auction block.

“The BSP TDF average auction yields were again slightly lower after the slower than expected latest inflation data,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

This would support further rate cuts by the central bank, he said.

Headline inflation was at 1.7% in October, steady from September but easing from 2.3% in the same month last year.

This was a tad below the 1.8% median estimate in a BusinessWorld poll of 17 analysts but was within the central bank’s 1.4-2.2% forecast for the month. It also marked the eighth consecutive month that inflation was lower than the BSP’s 2-4% annual target.

The October print brought the 10-month average to 1.7%, matching the central bank’s forecast for the year.

Last month, the BSP cut benchmark borrowing costs by 25 bps for a fourth straight meeting to bring the policy rate to 4.75%. It has now lowered rates by a total of 175 bps since August 2024.

BSP Governor Eli M. Remolona, Jr. has said that another 25-bp cut is possible at the Monetary Board’s Dec. 11 meeting, adding that they could extend their easing cycle until next year to provide some stimulus amid the expected economic fallout from the corruption scandal involving government infrastructure projects that has affected investor confidence. — K.K. Chan