Demand for term deposits surges

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By Melissa Luz T. Lopez, Senior Reporter

DEMAND FOR term deposits soared this week, with players crowding the one-week tenor ahead of the central bank’s rate-setting meeting.

Bids for short-term deposits rose to P85.065 billion on Wednesday, coming from P69.643 billion the previous week to settle well above the P70 billion the Bangko Sentral ng Pilipinas (BSP) put up for auction.

Banks scrambled to put their extra cash in shorter tenors, with all three maturities going oversubscribed.

The seven-day term saw tenders reach P52.171 billion yesterday, surging from the P36.406 billion in offers received last week to fill the P40 billion on the auction block.

Despite this, yields still climbed to average 5.1135%, up by about 10 basis points (bp) from the 5.0168% fetched the previous week. Banks wanted higher returns ranging from 4.9-5.2498%, hovering close to the ceiling set by the central bank.

The 14-day deposits also saw bids improve this week to P21.184 billion, maximizing the BSP’s P20-billion offer and picking up from the P20.057 billion received during the previous exercise. The average yield likewise rose to 5.1649% from 5.1271% the week prior.

On the other hand, demand for the 28-day tenor softened to P11.71 billion, lower than the P13.18 billion fetched last week but still filled the P10 billion which the BSP wanted to sell. Yields climbed further to average 5.1952%, a new high compared to 5.1433% the previous week.

Since June 2016, the term deposit facility (TDF) has been the central bank’s primary tool to capture excess liquidity. Through the weekly auctions, the BSP can bring market and interbank rates closer to its desired range by setting the standard for short-term instruments by setting the accepted margins for these placements.

TDF rates have been rising since mid-November after the BSP raised benchmark yields by another 25 bps. This marked the fifth straight hike from the BSP this year, which brought benchmark rates within the 4.25-5.25% range.

Sought for comment, BSP Deputy Governor Diwa C. Guinigundo said market players may be taking positions ahead of the Monetary Board’s rate-setting meeting today.

“Markets believe inflation trend is downhill so the banks are more willing to place their money with the BSP,” Mr. Guinigundo said via text message.

The BSP will hold their eighth and last policy meeting today, with market players expecting a pause after a cumulative 175-bp rate increase since May. This comes after headline inflation dropped to six percent in November, confirming views that prices have peaked and will ease back to the 2-4% target in 2019.

Mr. Guinigundo previously noted that banks may also be holding on to more cash to service bigger client payments and withdrawals, as demand usually surges during the holidays.