Yields on BSP’s term deposits climb as demand drops further

By Melissa Luz T. Lopez, Senior Reporter
TERM DEPOSITS saw tepid demand yesterday to mark a second straight week of settling below offer, while yields maintained their ascent across all tenors.
Banks only wanted to place P93.128 billion under term deposits offered by the Bangko Sentral ng Pilipinas (BSP) this week, well below the P100-billion offering and the P95.302 billion worth of tenders put up a week ago.
Only the two-week tenor was met with substantial demand while the one-week and one-month instruments were barely filled.
Market players wanted to place P38.001 billion under the seven-day term on Wednesday, recovering from last week’s P31.958 billion although still below the P40 billion which the central bank wanted to sell.
They also asked for wider margins for these placements as yields averaged 4.3744%. This rose from 4.3218% fetched last week, and came from a range of 4.25-4.5%.
On the other hand, banks crowded the 14-day deposits as they betted as much as P44.949 billion, rising from P42.674 billion the prior week to gobble up the P40 billion on the auction block.
Rates fetched for these two-week papers also saw a modest climb compared to other tenors, moving to a 4.4224% average from 4.4123% the prior week. This came ahead of the BSP’s next rate-setting meeting scheduled Sept. 27.
In contrast, bets for the 28-day instruments plummeted to P10.178 billion, barely half the P20.67 billion bids posted during the Sept. 5 exercise. The BSP even had to reject some offers and only accepted bids worth P9.678 billion, versus the P20 billion up for the taking yesterday.
As a result, returns sought by banks climbed to 4.4824% against the 4.4515% average accepted yield a week ago.
The term deposit facility (TDF) stands as the central bank’s primary tool to capture excess money supply in the financial system. The weekly auctions of short-term papers are meant to signal the direction of market and interbank rates, with the BSP targeting to bring market rates within the 3.5-4.5% range.
The Monetary Board has raised benchmark rates by a total of 100 basis points (bp) since May in an attempt to temper surging commodity prices.
Market players expect another rate hike from the BSP this month, with some betting that another aggressive 50bp increase will be announced following the faster-than-expected 6.4% inflation rate recorded in August.
Inflation has averaged 4.8% for the first eight months, well beyond the 2-4% target band set by the central bank.
BSP Governor Nestor A. Espenilla, Jr. said that policy makers will “take strong immediate action” to manage inflation expectations as well as excessive swings in the peso-dollar trading in order to maintain price stability, with a note that an emergency meeting ahead of the scheduled review is an option for now.
Due to weakening demand, the BSP has cut next week’s TDF auction volume to P70 billion. It will continue offering P40 billion for the seven-day term, but just P20 billion for the 14-day tenor, down from P40 billion previously, and P10 billion for the 28-day deposits, only half of this week’s P20-billion program.