Yields on term deposits slip on RRR cut

YIELDS on the central bank’s term deposits slipped on Wednesday as inflation eased in October and following increased liquidity due to the reserve requirement ratio (RRR) cut that took effect this month.

Bids for the Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) hit P127.606 billion, above the P120 billion auctioned off, central bank data showed.

This was also higher than the P82.093 billion in bids the BSP received last week for the P80 billion on the auction block.

“The higher offer volume was in response to the expected increase in liquidity following the RR (reserve ratio) cut,” BSP Deputy Governor Francisco G. Dakila Jr. said in an email to reporters.

Tenders for the seven-day notes amounted to P45.668 billion, higher than the P40 billion on offer and also surpassing last week’s P30.189 billion bids against the P30-billion program.

Accepted yields for the tenor ranged from 4.125% to 4.225%, a slightly wider range compared to last week’s 4.15% to 4.225%. This resulted in an average rate of 4.1923%, 1.3 basis points (bp) lower than last week’s 4.2053%.

Meanwhile, the 14-day paper attracted bids worth P41.165 billion, more than the P40 billion on offer. It also went beyond the P22.925 billion in tenders seen last week versus the P20-billion offer.

Lenders sought returns ranging from 4.15% to 4.45%, a narrower range versus the 4.15-4.283% band seen a week earlier. The average rate for the two-week papers slipped to 4.2336%, 1.15 bps lower than last week’s 4.2451%.

On the other hand, the 28-day deposits received tenders amounting to P40.773 billion, higher than the P40-billion offering and the P28.979 billion in tenders last week for the BSP’s P20-billion program.

Accepted yields for the tenor clocked in from 4.18% to 4.5%, widening from the previous auction’s range of 4.21-4.5%. This brought the one-month paper’s average yield to 4.3122%, 2.36 bps higher than last week’s 4.2886%.

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 TDF yields mostly slipped after the release of latest inflation data.

“Most of the TDF auction yields were slightly lower today after the cut in banks’ reserve requirement ratio and the reduction in RRR of bank-issued bonds took effect on the first reserve week of November, releasing a total of P125 billion into the financial system,” Mr. Ricafort said in an email on Wednesday.

“Furthermore, the latest easing in inflation to a 3.5-year low of 0.8% year-on-year in October 2019, partly caused some downward adjustments in local interest rates, including in most the latest BSP TDF auction yields,” he added.

The reserve ratio of universal and commercial banks now stands at 15% following the effectivity of the 100-bp cut in RRR announced in September. Likewise, the RRR of thrift banks is now at five percent, while that for rural banks stands at three percent.

The BSP announced last month that the reserve ratio of universal, commercial and thrift banks will be slashed by another 100 bps effective December, bringing total reductions to their reserve ratios for this year to 400 bps. This cut will also apply to the reserve ratio of non-bank financial institutions with quasi-banking functions (NBQBs).

This will bring the reserve ratio of universal and commercial lenders to 14% by December, while the RRR of thrift banks will stand at four percent. On the other hand, the reserve ratio of NBQBs will be cut to 14% next month.

Meanwhile, Philippine Statistics Authority data released Tuesday showed headline inflation continued to cool to 0.8% from 0.9% in September. This is also slower than the multi-year high 6.7% print seen in September and October 2018. — Luz Wendy T. Noble