Yields on term deposits surge

By Melissa Luz T. Lopez, Senior Reporter
YIELDS ON term deposits surged to fresh highs yesterday, with banks crowding all three tenors following a fresh rate hike from the Bangko Sentral ng Pilipinas (BSP).
Offers for the term deposit facility (TDF) reached P98.361 billion on Wednesday, surging from the P65.626 billion received the previous week and settling higher than the P70 billion the central bank placed on the auction block.
All three tenors were oversubscribed with average rates hitting close to five percent or higher as lenders took advantage of a rate hike worth 25 basis points (bp) which took effect Friday.
The BSP announced a fifth consecutive rate hike last week, dubbed a “proactive” move amid volatilities in the external market even as domestic inflation is moderating. Policy rates now range between 4.25-5.25%.
Bids for the seven-day tenor hit P54.186 billion, improving from P35.409 billion last week to surpass the P40-billion auction amount set by the BSP. However, players asked for rates ranging from 4.82-5%, resulting in an average of 4.9738% compared to 4.8291% previously.
The 14-day papers likewise saw bigger demand at P29.762 billion, well above the P20-billion offering and climbing from P19.32 billion in tenders received a week ago. In turn, the average yield climbed to 5.0596%, or 19.5 bps higher than the 4.8642% fetched during the Nov. 14 exercise.
Appetite for the 28-day deposits also inched higher to P14.413 billion versus P10.897 billion seen previously, filling the reduced P10-billion offering from the central bank.
Banks took advantage of higher benchmark rates and asked for returns ranging from 4.925-5.203%, leaving a 5.1186% weighted average. This compares with the 4.9162% quoted for the month-long papers seen a week ago.
The central bank uses the TDF to capture excess liquidity and influence short-term rates in the financial system. Through the weekly auctions, the BSP can bring market and interbank closer to its desired range by setting the standard for short-term instruments using the margins that they pay to banks for these placements.
BSP Deputy Governor Diwa C. Guinigundo said players swarmed all three tenors as they “seem to be indifferent” on taking positions, amid expectations that the central bank’s tightening cycle “is coming to an end.”
“One may expect that this recent development could result in greater propensity of banks to place their excess funds with the BSP now that loan growth is slowing down and the peso has begun to appreciate,” Mr. Guinigundo said in a text message to reporters.
“In contrast, demand for cash gathers momentum with the approaching holidays. This combination will determine to a large extent market liquidity going forward.”
The central bank will again auction off P70 billion worth of term deposits next week, split into P40 billion for one-week papers, P20 billion for the 14-day tenor and P10 billion for the month-long instruments.
Some market players are saying that liquidity is “tight” in recent weeks, at a time when interest rates are trending higher and with growing capital requirements in the economy.