YIELDS ON THE Bangko Sentral ng Pilipinas’ (BSP) term deposits ended mixed on Wednesday, with investors preferring the shorter seven-day papers ahead of the central bank’s policy decision on Thursday.

Bids for the central bank’s term deposit facility (TDF) reached P634.979 on Wednesday, slightly above the P630-billion offering but failing to beat the P661.872 billion in tenders seen on Feb. 3.

Broken down, demand for the seven-day papers reached P228.491 billion, higher than the P210 billion auctioned off by the BSP as well as the P210.61 billion in bids last week.

Lenders asked for yields ranging from 1.59% to 1.75%, unchanged from the previous week’s margin. However, the average rate for the one-week tenor settled at 1.6154%, inching down by 0.03 basis point (bp) from the 1.6157% fetched last week.

Meanwhile, tenders for the two-week papers amounted to P406.488 billion, lower than the P420 billion on offer and the P451.262 billion seen during last week’s auction.

Accepted rates for the 14-day term deposits ranged from 1.59% to 2%, a wider band compared with the 1.6% to 1.638% logged previously. This caused the tenor’s average to inch up by 0.08 bp to 1.6264% from the 1.6256% recorded a week ago.

The central bank did not offer the 28-day term deposits for the 17th consecutive auction. This follows the start of BSP’s weekly offerings of bills with the same tenor.

The TDF and BSP securities are among the tools used by the central bank to gather excess liquidity in the financial system and to better guide market interest rates.

Results of Wednesday’s auction showed there is ample liquidity in the financial system despite the lower bids seen for the deposits, BSP Deputy Governor Francisco G. Dakila, Jr. said.

“The marginal undersubscriptions observed in the recent auctions merely reflect some shifts in the maturity preferences of market participants,” Mr. Dakila said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort, meanwhile, said results of the auction reflected investor sentiment prior to the first policy-setting meeting of the Monetary Board this year on Thursday, Feb. 11.

“The mixed TDF auction yields could reflect market expectations that the local policy rates could be kept unchanged at record low of 2%, while [the BSP is] waiting for any signs of second-round inflation effects before making any decision on monetary policy,” Mr. Ricafort said in a text message.

A total of 17 out of 18 analysts in a BusinessWorld poll held last week said they expect the BSP to hold its overnight reverse repurchase, lending, and deposit rates steady at their current record lows of 2%, 2.5%, and 1.5%, respectively. The central bank cut rates by 200 bps last year to provide support to the economy amid the coronavirus pandemic.

Headline inflation spiked to a two-year high of 4.2% in January due to higher food and transport costs, going beyond the 2-4% target of the central bank. — Luz Wendy T. Noble