TDF rates up as demand weakens

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RATES FETCHED for term deposits climbed anew this week as demand dropped from last week to come up short of the total offer following the release of the August inflation print.

Demand for the short-term papers reached P95.302 billion yesterday, down from the P116.396 billion fetched a week ago.

The amount also settled below the P100 billion the Bangko Sentral ng Pilipinas (BSP) placed on the auction block.

The shortest tenor under the term deposit facility (TDF) was undersubscribed and average rates across all tenors climbed to fresh record highs.

Broken down, the central bank awarded the tendered P31.958 billion for the seven-day tenor as bids were below the P40 billion it offered on Wednesday.

Its average yield stood at 4.3218%, 3.4 basis points (bp) higher than the 4.2878% fetched a week ago as players sought returns ranging from 4.15-4.4%.

Meanwhile, the BSP awarded P40 billion as planned for the 14-day deposits. The tenor got the bulk of yesterday’s total bids as it received tenders totalling P42.674 billion, although lower than the P49.25 billion placed last week.

This decline in bids pushed its average yield to 4.4123%, up 2.31 bps from the 4.3892% accepted the previous week.

The central bank likewise made a full P20-billion award of the 28-day papers even as appetite eased to P20.67 billion from last week’s P23.335 billion.

The month-long paper’s average rate climbed by 4.1 bps to 4.515% from the 4.4105% booked in the previous auction.

The TDF is the BSP’s main tool to hold excess liquidity in the financial system. The monetary authority conducts the weekly auctions of short-term papers and decides on the rates to accept, with the view that this will signal the direction of the market and interbank rates.

A bond trader said in a phone interview that the TDF auction result was “expected given the 6.4% inflation print.”

“I expected the spike in the yields given the 6.4% inflation. With the spike on the yield, they have no choice but to cover their requirements,” the trader said on Wednesday.

Headline inflation picked up to a fresh nine-year high of 6.4% in August, the Philippine Statistics Authority reported on Wednesday, coming from July’s 5.7% and from 2.6% the same month last year.

The August print was above the upper end of the 5.5-6.2% estimate of the BSP’s Department of Economic Research and also faster than the 5.9% median in a BusinessWorld poll among 14 economists.

“As it is right now, others are speculating that the BSP might hike by Sept. 24,” the trader added.

The central bank yesterday said it will be “looking more closely at the latest data to reassess the medium-term inflation path.”

“Under the circumstances, we will weigh the need for further monetary policy action,” the BSP said.

The Monetary Board will review its current policy settings on Sept. 27, their sixth meeting for the year. BSP Governor Nestor A. Espenilla, Jr. said the monetary authority has “kept the door open” for future tightening to dampen price pressures.

The BSP will offer the same volumes for all tenors under its term deposit facility next week. — Karl Angelo N. Vidal