Yields on 7-day deposits slip on demand

YIELDS on the central bank’s term deposit facility (TDF) dipped on Wednesday as oil prices continued to correct amid renewed demand.

Tenders for the seven-day notes offered by the Bangko Sentral ng Pilipinas (BSP) on Wednesday amounted to P328.68 billion, higher than the P170 billion on the auction block and also surpassing the P273.755 billion in bids seen last week for the P150 billion up for grabs.

Banks asked for yields ranging from 2.25% to 2.2525%, a narrower margin compared to the 2.25% to 2.254% seen the previous week. This caused the average rate of the seven-day deposits to settle at 2.251%, down by 0.06 basis point from the 2.2516% logged on May 27.

“The results in the TDF auction reflect the market’s continued interest for BSP’s deposit facilities amid ample liquidity in the financial system,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

The TDF is the central bank’s primary tool to shore up excess liquidity from the financial system and to better guide market interest rates.

Offerings of the 14- and 28-day term deposits remain suspended. The BSP halted offering term deposits in mid-March to support the banking system amid the imposition of the lockdown measures.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the continued strong demand for the TDF shows investors are searching for higher yields as they park their excess funds. He said the lower rates came amid a correction in the global oil prices.

“The consistent marginal easing of the 7-day TDF auction yield may be partly attributed to the fact that global oil prices recently corrected higher to the highest levels in nearly 3 months, that could limit any further easing on inflation,” Mr. Ricafort said in a text message.

Oil prices saw some recovery in May after succumbing to negative territory in April. This, as demand picked up after the gradual reopening of some economies and as major oil exporters committed to cut down production by 10 million barrels per day.

Mr. Ricafort said the decline in the average rate was marginal as its yield continued to inch closer to the headline inflation print.

“Any rate lower than inflation will be considered negative net interest rate considering also that there is a 20% withholding tax on interest rate income,” he said.

Headline inflation in April settled at 2.2% on the back of lower food and oil prices, the Philippine Statistics Authority (PSA) reported last month. This is slower than the 2.5% in March as well as the three percent recorded in April 2019.

Meanwhile, May inflation likely settled at 1.9% to 2.7%, the BSP Department of Economic Research said, giving a point projection of 2.3%. A poll by BusinessWorld among 17 economists yielded a median estimate of 2.2%, with analysts citing higher prices of some food items and fuel as upward pressures.

The PSA will report the official May inflation data on June 5. — L.W.T. Noble