Yields on BSP’s term deposits climb as banks crowd offering
By Melissa Luz T. Lopez
Senior Reporter
BANKS again swarmed the central bank’s term deposit facility (TDF) yesterday, although yields continued to climb as players sought higher yields amid some uncertainties in the market.
Demand for the three tenors reached P145.828 billion during this week’s auction, shooting beyond the P110 billion the Bangko Sentral ng Pilipinas (BSP) placed on the auction block. Total bids, however, slipped by a tad from the previous week’s P146.856 billion, although all instruments remained oversubscribed.
Nearly half of the tenders went to the seven-day term deposits which reached P70.838 billion, against last week’s P80.026-billion demand and the BSP’s P50-billion offering.
Despite the clamor, the average interest rate sought by banks rose to 3.1893% from 3.1767% previously. Banks sought for returns ranging from 3-3.2298%.
Meanwhile, bets climbed under the 14-day tenor to hit P52.255 billion, well beyond the P40-billion auction offering and last week’s bids worth P43.31 billion.
Yields for the two-week instruments picked up to 3.2404% from 3.1674% a week ago, marking a sustained rise since the new tenor was introduced in February.
Bids for the 28-day term deposits stood steady at P22.735 billion from P23.52 billion, just above the P20 billion which the central bank wanted to sell. The month-long tenor also saw the biggest increase in rates, with the average yield climbing to 3.3274% compared to 3.2627% last week.
The TDF serves as the central bank’s primary tool in mopping up excess funds in the financial system, especially after the regulator introduced a reduction in the reserve requirement ratio (RRR) imposed on universal and commercial banks.
The adjustment, which took effect March 2, is said to be operational as it seeks to reduce market distortions created by the “ultra-high” RRR regime that makes borrowings more expensive.
Central bank officials have said the RRR cut was timed as the central bank can now rely better on the weekly term deposit auctions to influence market rates, with the view that they can deploy other macroprudential and targeted risk management measures to contain its potential impact on inflation and credit growth.
BSP Deputy Director Dennis D. Lapid said on Tuesday that the central bank will continue to employ a “gradualist” approach in proceeding with further reserve cuts, but noted that it remains a live discussion in the Monetary Board.
He added that the recent pickup in TDF yields in recent weeks despite strong demand was likely “the effect of market uncertainty,” especially following the release of faster-than-expected February inflation rate which clocked in at 4.5% using the 2006 base year and 3.9% under the 2012 base. This is fastest pace recorded since October 2014.
The BSP will hold its next rate-setting meeting on March 22. The central bank decided to cut the RRR during its Feb. 8 meeting, but announced the “operational” move only a week after.
Next week, the central bank will again offer a total of P110 billion in term deposits. Broken down, it will offer P50 billion of the seven-day term, P40 billion for the 14-day, and P20 billion for the 28-day term deposits.

