TERM DEPOSITS were mixed during yesterday’s auction as market participants favored the week-long tenor, which came amid a steeper climb in rates compared to previous weeks.
Bids for the term deposit facility (TDF) softened to P112.07 billion, down from the P133.034 billion worth of tenders received the previous week and matching the P110 billion offered by the Bangko Sentral ng Pilipinas (BSP).
Wednesday’s auction saw banks preferring the seven-day instruments, which resulted in a slight undersubscription for the 14-day tenor.
Market participants offered to place as much as P50.446 billion for the seven-day term, higher than the P47.105 billion worth of bids a week earlier and slightly exceeding the P50 billion on auction.
Despite the strong demand, banks still sought bigger returns from the central bank, with the average 3.3967% higher than the 3.3018% fetched during the April 11 exercise.
Meanwhile, bids for the 14-day tenor slipped to P38.15 billion from P55.805 billion the previous week, against the P40 billion which the BSP wanted to sell. Yields still rose to 3.437% from 3.4053% previously.
The opposite was seen in the 28-day term deposits, where total tenders hit P23.474 billion compared with the P20 billion on offer. Demand slipped from last week’s P30.124 billion, but rates actually dropped to 3.4097% from a 3.4192% average the prior week.
The TDF is the central bank’s main tool in capturing excess funds in the financial system. Through this, the BSP expects to bring market rates closer to its 3% benchmark rate and prod firms to pursue interbank lending.
The BSP is also relying on the weekly auctions to take in idle funds, especially after the regulator trimmed the reserve requirement ratio imposed on universal and commercial banks to 19% of deposits which took effect March 2.
BSP Deputy Governor Diwa C. Guinigundo has said that liquidity is returning to banks after demand normalized emerging from the Easter break in late March.
He went on to explain that higher yields fetched under the TDF reflect mounting expectations of stronger inflation and rising global yields, prompting market participants to seek bigger returns for parking idle funds under the central bank facility.
Inflation came in at 4.3% for March under the 2012 base year, the Philippine Statistics Authority said. This meant a sustained pickup in prices for a fourth straight month to surpass the 2-4% target band set by the central bank.
The pace of price increases averaged 3.8% during the first quarter, just a notch below the full-year forecast of 3.9%.
Meanwhile, global yields have been on the rise following the decision of the Federal Reserve to raise borrowing rates by 25 basis points last month. Fed chairman Jerome H. Powell also hinted at future rate hikes, saying the Fed will maintain its path of “gradual” increases amid strong US economic growth. — Melissa Luz T. Lopez