By Melissa Luz T. Lopez, Senior Reporter
YIELDS FETCHED for term deposits declined this week amid strong demand, with banks willing to park more funds with the central bank even for longer periods.
Demand reached P119.08 billion during Wednesday’s auction, down from the P124.259 billion worth of bids received a week ago but still well above the P80 billion the Bangko Sentral ng Pilipinas (BSP) wanted to sell.
All tenors remained oversubscribed for the third straight week, with offers piling up under the month-long tenor. With the strong appetite, banks even asked for lower returns for their placements across the board.
The seven-day deposits fetched P66.002 billion in total demand, settling higher than the P50 billion on the auction block although lower than the P73.282 billion in offers received the previous week.
Market players asked for smaller yields from a narrow 4.68-4.7488% range to fetch a 4.7207% average, a tad lower than last week’s 4.7274%.
Tenders for the 14-day instruments also stood buoyant at P31.273 billion, slightly lower than last week’s P33.216 billion but still beyond the central bank’s P20-billion offer. Banks also tempered their requested returns, which drove the average lower to 4.765% from 4.7729% previously.
Meanwhile, appetite for the 28-day tenor improved to P21.805 billion compared to P17.761 billion the past week and more than double the P10 billion the BSP put up for this week’s exercise. The stronger demand also drove average returns lower to 4.8362% coming from 4.8549% during the Oct. 10 auction.
The term deposit facility (TDF) is the central bank’s primary tool to capture excess money supply in the financial system. The weekly auctions are meant to usher market and interbank rates to within the BSP’s desired range by setting the standard for short-term instruments using the margins that they pay to banks for these TDF placements.
This is the first time that yields went down since the central bank announced another rate hike worth 50 basis points during their Sept. 27 policy meeting. The move, which is meant to rein in inflation expectations and support the peso, brought benchmark interest rates to the 4-5% range.
“Relative stability” in the foreign exchange market as well as sustained robustness in government spending are arming banks with more cash for lending and investments, with the surplus left to be parked under the TDF.
Monetary Board Member Felipe M. Medalla has said the central bank may “take a pause” with tightening moves should inflation momentum show signs of easing. The current key policy rate of 4.5% is at a nine-year high.
For next week’s offering, the BSP will raise the auction volume of 28-day deposits to P20 billion from P10 billion, bringing the total amount up for grabs to P90 billion.