TDF yields inch higher as BSP keeps rates steady

YIELDS ON term deposits auctioned off by the Bangko Sentral ng Pilipinas (BSP) inched higher on Wednesday following its decision to keep benchmark interest rates steady last week.

Tenders for the BSP’s term deposit facility (TDF) reached P677.985 billion on Wednesday, higher than the P480 billion on the auction block. This was also more than last week’s P645.18 billion in bids for the P390 billion up for grabs.

Broken down, the one-week term deposits were met with bids amounting to P233.945 billion, higher than the P200-billion offering but failing to beat the P251.53 billion worth of tenders logged a week ago.

Banks asked for yields ranging from 1.825% to 1.86%, a tad narrower compared with the 1.82% to 1.86% logged the prior week. This led the average rate to hit 1.8431%, rising by 0.54 basis point (bp) from the 1.8377% seen a week ago.

Meanwhile, demand for the 14-day papers totaled P336.33 billion, surpassing the P220 billion on offer as well as the P297.14 billion in bids seen at the Sept. 30 auction for the P200 billion offered by the central bank.

Accepted rates for the tenor fell within the 1.8215% to 1.8598% range, a thinner band compared with the 1.82 to 1.87% margin seen a week ago. With this,  the average rate for the two-week deposits stood at 1.8492%, inching up by 0.07 bp from the 1.8485% fetched at last week’s auction.

Lastly, tenders for the one-month deposits amounted to P107.71 billion, more than the P60 billion up for grabs and the P96.51 billion in bids seen for the BSP’s P50-billion offering a week ago.

Yields on the 28-day papers ranged from 1.83% to 1.85%, a slightly narrower margin compared with the 1.82% to 1.85% band recorded on Sept. 30. This caused the tenor’s average rate to settle at 1.8445%, rising 0.19 bp from the 1.8426% seen in the previous auction.

The TDF is among the central bank’s main tools to gather excess liquidity in the financial system and to better guide market interest rates.

“The results of the TDF auction show that financial system liquidity continues to be ample,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

The slightly higher TDF yields came as the market priced in the Monetary Board’s decision to keep borrowing costs steady last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said yesterday.

“TDF auction yields were again mostly marginally higher after the BSP kept its key local policy rate at the record low of 2.25% and inflation slightly eased to 2.3% in September 2020,” Mr. Ricafort said in a text message.

The BSP’s policy-setting Monetary Board left benchmark rates untouched at its fifth policy review on Thursday amid encouraging signs of economic recovery and as they allow earlier cuts to work their way through the financial system.

Rates on the central bank’s overnight reverse repurchase, lending, and deposit facilities stand at record lows of 2.25%, 2.75%, and 1.75%, respectively.

Meanwhile, inflation eased for the second straight month in September to its lowest level in four months on the back of moderating prices in the heavily weighted food and nonalcoholic beverages, the Philippine Statistics Authority (PSA) said on Tuesday.

Preliminary PSA data showed headline inflation stood at 2.3% in September, the slowest since May’s 2.1%. The result was also down from the 2.4% print in August, but higher than the 0.9% pace logged in September 2019.

The latest reading, which matched the median estimate of 2.3% in a BusinessWorld poll conducted last week, fell within the BSP’s 1.8%-2.6% forecast range for September.

Year-to-date inflation averaged 2.5%. This was higher than the BSP’s revised forecast of 2.3% for 2020 but still within its 2-4% target for the year. — L.W.T. Noble