Yields on term deposits rise on strong demand

TERM DEPOSIT yields rose on the back of strong liquidity in the market. — PHILSTAR/KRIZ JOHN ROSALES

By Melissa Luz T. Lopez, Senior Reporter
YIELDS ON term deposits continued to inch higher this week amid robust demand as banks continue to sit on piles of excess cash.
Banks offered to place as much as P106.739 billion under the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) yesterday. This is well above the P100 billion placed on the auction block, but posted a marked decline from the P147.79 billion tenders received a week ago.
Demand for the short-term papers softened as the markets have absorbed the news of an aggressive rate hike from the Monetary Board during their Aug. 9 policy meeting.
Still, players took advantage and sought higher rates, which marked a fresh peak in the TDF’s two-year history.
Yields sought by banks climbed further by as much as seven basis points (bp) from last week, on top of the more than 30-bp pickup in rates across tenors during the Aug. 15 exercise.
Bids for the seven-day term deposits eased to P42.169 billion on Wednesday, still above the P40-billion offer although lower than the P50.537 billion placements received the prior week.
Average interest rates sought by players climbed to 4.2069%, around three basis points higher than the 4.1759% fetched previously.
In contrast, demand slumped for the 14-day tenor to shore up just P37.887 billion, lower than last week’s P62.531 billion and settling below the P40 billion which the central bank wanted to sell.
Banks also pushed their luck as they sought to maximize gains from the TDF as they asked for returns ranging from 4.2-4.499%, which is right below the 4.5% ceiling rate. In turn, rates averaged 4.2976% yesterday from 4.2449% a week ago.
Meanwhile, the 28-day papers saw demand slip to P26.683 billion from P34.722 billion previously, but still well above the P20 billion offering. These month-long deposits saw the biggest increase in yields, with the average rate up 7.5 bps to 4.359%.
The TDF is currently the central bank’s primary tool to arrest excess money supply in the financial system. The BSP conducts the weekly auctions of short-term papers to bring market and interbank rates within its desired spread, which now ranges from 3.5-4.5% following a cumulative 100-bp increase in benchmark rates.
The Monetary Board fired off its strongest tightening move in a decade during their Aug. 9 meeting amid signs that inflation could remain elevated until 2019.
BSP Governor Nestor A. Espenilla, Jr. has said that apart from adjusting policy rates, the TDF stands as their way to create an “effective tightening” in the market as it steers the direction for short-term interest rates.
Next week, offer volumes for the term deposits will remain steady at P40 billion apiece in the seven-day and 14-day papers and P20 billion for the 28-day tenor.