Yields on term deposits climb as market anticipates BSP hike

THE central bank’s term deposits fetched higher yields on Wednesday as investors expect a rate hike. — BW FILE PHOTO

YIELDS on the term deposits of the Bangko Sentral ng Pilipinas (BSP) inched higher on Wednesday as investors expect the regulator to start increasing benchmark rates due to inflation risks.

Total demand for the term deposit facility (TDF) of the central bank amounted to P327.962 billion on Wednesday, going beyond the P260-billion offering. This also surpassed the P312.547 billion in bids recorded a week ago.

Broken down, the seven-day papers fetched bids amounting to P146.17 billion, higher than the P120-billion offer but failing to beat the P150.945 billion in tenders last week.

Banks asked for yields ranging from 1.9% to 2.125%, wider than the 1.92% to 1.9827% band seen in the previous week’s auction. This caused the average rate of the one-week paper to increase by 2.24 basis points (bps) to 1.9823% from 1.9599% previously.

Meanwhile, bids for the 14-day term deposits amounted to P181.792 billion, going beyond the P140 billion auctioned off by the BSP as well as the P161.602 billion in tenders seen on May 11.

Accepted rates ranged from 1.95% to 2.2%, barely moving from the 1.9% to 2.25% margin seen a week ago. With this, the average rate of the two-week deposit rose by 6.45 bps to 2.0932% from 2.0287% in the prior auction.

The BSP has not offered 28-day term deposits for more than a year to give way to its weekly auctions of securities with the same tenor.

Both the TDF and 28-day bills are used by the central bank to gather excess liquidity in the financial system and to better guide market rates.

Average TDF yields were higher due to mounting expectations of a BSP rate hike this week amid growing inflation risks, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Benjamin E. Diokno said at an online briefing on Wednesday that “[the] space for maintaining an accommodative policy stance has considerably narrowed” as inflation continues to notch multi-year highs.

Inflation surged to an annual 4.9% in April, the highest in more than three years as soaring food and energy prices continued to hurt consumers.

Consumer prices rose to a 40-month high of 4.9% annually, from 4% in March and 4.1% in April a year ago, preliminary data from the Philippine Statistics Authority showed.

It was the quickest pace since the 5.2% print in December 2018.

The headline figure also breached the central bank’s 2-4% target for the year and is near the upper bound of its 4.2-5% forecast for April.

Inflation averaged 3.7% in the four months to April, lower than the 4.1% seen in the same period last year. However, it was still lower than the central bank’s 4.3% forecast for the year.

Some market players are pricing in a rate hike at the BSP’s meeting on Thursday as faster-than-expected economic growth in the first quarter is seen to put upward pressure on inflation.

A BusinessWorld poll of 17 analysts conducted last week showed they are divided on the BSP’s next move, with nine betting rates will remain unchanged, while eight are expecting a 25-bp hike.

Benchmark rates have been at record lows since November 2020, when the BSP cut rates by 25 bps.

Economic growth in the first quarter accelerated by a higher-than-expected 8.3% annually on strong household spending as lockdowns were eased, the Philippine Statistics Authority reported last week.

It was a reversal from the 3.8% decline in the same period last year and faster than the 7.8% gross domestic product (GDP) growth logged in the final three months of 2021.

The first quarter’s GDP growth figure was the highest since the 12.1% recorded in the second quarter last year. The latest print is also within the 7-9% target of the government.

Meanwhile, the Department of Labor and Employment on Saturday approved a P33 increase for the daily minimum wage in Metro Manila and by P55 to P110 for the Western Visayas region. Wage and fare hikes are among the conditions the central bank said it will monitor for possible second round inflation effects.

Mr. Ricafort added that the increase in TDF rates tracked rising US yields.

Reuters reported that the yield on the 10-year Treasuries rose 10.7 bps to 2.986%. This was following upbeat retail sales data which strengthens the case for continued economic growth in the US. — L.W.T Noble with Reuters