Yields on BSP’s term deposits decline on hints of more easing

YIELDS ON term deposits declined on Wednesday after the central bank chief said a rate cut before the year ends is still possible and following the fresh liquidity expected from the revision of the definition of deposit substitutes.

Tenders for the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) totaled P180.328 billion, barely filling the P180 billion on the auction block, central bank data showed.

This also beat the P171.972 billion in bids the BSP received last week for the P150 billion on offer.

Banks’ tenders for the seven-day term deposits amounted to P62.442 billion, failing to fill the P70 billion on offer and also down from last week’s P63.72 billion in bids for the P50 billion on the auction block.

Yields for the tenor ranged from 4.07% to 4.45%, a wider range from last week’s 4.15-4.3456% band. This resulted in an average rate of 4.2508%, higher by 1.34 basis points (bps) from last week’s 4.2374%.

Meanwhile, the 14-day papers attracted bids totaling P53.975 billion, going beyond the P50 billion on offer and also surpassing the P47.465 billion in tenders seen last week.

Lenders asked for returns ranging from 4.14% to 4.4566%, a wider margin versus the 4.25-4.5% range seen on Nov. 20. The average rate for the two-week papers dipped to 4.3424%, down 1.09 bps from last week’s 4.3533%.

For 29-day deposits, tenders hit P63.911 billion, beyond the central bank’s P60-billion offer and also higher than the P60.787 billion in bids seen last week for the P50 billion up for auction.

Rates for the one-month tenor ranged from 4.19% to 4.5%, a wider band versus the previous auction’s margin of 4.29% to 4.45%. Following this, the one-month paper’s rate averaged at 4.3324%, lower by 2.68 bps from last week’s 4.3592%.

The TDF is the BSP’s main tool to shore up excess liquidity in the financial system and to better guide market interest rates.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said fresh signals from the BSP on possible monetary easing affected TDF yields.

“TDF auction yields were mostly slightly lower week-on-week after BSP Governor [Benjamin E.] Diokno signalled possible cut in local policy rates on the next monetary policy-setting [meeting] after earlier signals of no more rate cuts for the rest of 2019,” he said in a text message.

He added that the lower yields also came after the central bank’s exclusion of interbank borrowings in deposit substitutes.

“Auction yields were also lower after the BSP decided to redefine…deposit substitutes to exclude interbank borrowings, effectively not subjecting interbank borrowings to reserve requirements, thereby freeing up more peso funds for loans and investments,” he explained.

Meanwhile, UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion noted that players seem to be opting for shorter tenors.

“It looks like trust entities are preferring shorter tenors at this point when liquidity still remains a challenge. The oversubscription of the recent auction indicates clearly the higher demand and the anticipation of the need to be more liquid as the year ends,” he said in an e-mail.

Mr. Diokno said on Monday that a rate cut on Dec. 12 — the BSP’s last policy meeting for the year — is still possible, depending on conditions.

“The BSP will always be data-dependent so we will evaluate…every time we have a policy meeting,” he said.

When asked about an S&P Global Ratings report which said the credit watcher is expecting another 25-bp cut from the central bank on top of the 75 bps in cuts done this year, Mr. Diokno said: “Pwede ’yun, pwede ’yun (It is possible).”

Before this, Mr. Diokno had said the central bank has “already done enough” for the economy and that the current monetary policy “remains appropriate.”

Benchmark policy rates currently stand at 3.5% for the overnight deposit facility, four percent for overnight reverse repurchase and 4.5% for overnight lending.

The central bank last week said its policy-making Monetary Board adopted the new definition for deposit substitutes under Section 95 of its charter that has been amended by Republic Act (RA) 11211 or the New Central Bank Act enacted in February.

With RA 11211, the same provision now defines that the phrase “obtaining funds from the public” means those that involve borrowing from at least 20 lenders at any one time that are individuals or companies which are not financial intermediaries.

“This means that borrowings from banks, quasi-banks and other financial intermediaries are no longer considered deposit substitutes which are subject to reserve requirements,” the BSP said in a statement last week, citing as examples interbank borrowings, repurchase agreements with financial counter-parties, as well as bonds issued to financial intermediaries.

“Ang implication ’nun (Its implication) is I think we released about P28 billion into the financial system,” Mr. Diokno said when asked about the revision, noting that they will monitor how the financial market will respond to the change.

Latest BSP data showed domestic liquidity picked up 7.7% year on year in September to P12 trillion, compared to the 6.3% growth recorded in August.

On the other hand, bank lending was still flat in September despite the BSP’s moves to ease policy earlier this year. Data showed outstanding loans of universal and commercial banks increased 10.5% year on year in September, an expansion unchanged compared to the August print. Inclusive of reverse repurchase agreements, bank lending grew 10.2% in September, slightly picking up from the 10% seen the previous month

The central bank will release October liquidity and bank lending data on Nov. 29. — L.W.T. Noble