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TDF yields decline on inflation outlook

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YIELDS on term deposits continued to decrease on Wednesday on expectations of slower October inflation and following the International Monetary Fund’s (IMF) downgraded economic growth outlook for the country.

The Bangko Sentral ng Pilipinas (BSP) received bids of P114.510 billion for its term deposit facility (TDF) yesterday, above the P90 billion on offer.

Wednesday’s total tenders however slipped from the P114.777 billion in tenders the central bank saw last week for its P80-billion offering.

Bids for the seven-day papers amounted P39.185 billion, well above the P30 billion on offer and also higher than last week’s P38.63 billion.

Banks accepted yields ranging from 4.12% to 4.25% for this tenor, slightly lower than last week’s 4.125-4.3% margin, resulting in an average rate of 4.2264%, lower by 0.84 basis point (bp) compared to last week’s 4.2348%.

Meanwhile, the two-week deposits were met with bids amounting to P35.52 billion, surpassing the P30 billion the BSP placed on the auction block. However, this week’s total fell from the P43.38 billion in bids seen last week for the same offer volume.




Banks sought returns between 4.15% and 4.283%, a slightly narrower range than the previous week’s 4.15-4.3% band. This caused the average rate for the 14-day papers to end at 4.2348%, dipping by 1.37 bps from last week’s 4.2485%.

On the other hand, the 28-day term deposits attracted bids worth P39.805 billion against the P30 billion on offer. This improved from the P32.767 billion in tenders seen last week for the BSP’s P20-billion program.

Accepted yields for the one-month papers ranged from 4.16% to 4.2785%, inching down from the previous auction’s 4.18-4.3%. This brought the tenor’s average rate to 4.2227%, falling by 5.27 bps from last week’s 4.2754%.

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

“Term deposit facility yields fell again as the central bank accepted lower bids due to subdued local inflation expectations this month. Participants remained broadly anchored from the lower inflation outlook from the Department of Finance (DoF)…,” a trader said in an email.

The DoF last week said it expect October inflations to clock in below one percent.

“For the rest of the year, assuming month-on-month price growth of at most 0.2% as in September, monthly inflation will be likely still below one percent in October before making upward corrections in the final two months,” the DoF said in an economic bulletin attributed to Undersecretary Gil S. Beltran, the department’s chief economist.

Headline inflation stood at 0.9% in September, further easing from the 1.7% logged in August.

The trader added that the market may have also priced in a possible 25-bp cut in US policy rates by the end of this month.

“The global markets still expect a possible cut in key US short-term interest rate amid the lingering global economic slowdown, especially with the recent contraction of manufacturing gauges in many developed countries such as in the US, Euro zone, and China,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an email.

Mr. Ricafort added that the tempered Philippine growth outlook could “increase the chance of further easing of local monetary policy…thereby partly causing the latest slight declines in TDF auction yields.”

The IMF slashed further its gross domestic product (GDP) growth projection for the Philippines, adding to other groups that now expect the economy to miss the government’s targets for this year and 2020.

According to the October issue of the IMF’s World Economic Outlook, titled “Global Manufacturing Downturn, Rising Trade Barriers,” Philippine GDP is now projected to grow by 5.7% this year from the six percent forecast it gave in July, the 6.5% it penciled in last April, as well as the 6.6% and 6.7% given in October and September last year.

The economy grew 6.2% last year, and is targeted by the government to pick up to 6-7% this year and then to 6.5-7.5% in 2020 and 7-8% in 2021-2022.

For 2020, the IMF expects the economy to grow by 6.2%, also down from the 6.3% forecast it gave in July.

Other multilateral lenders earlier scaled down their GDP projections for the Philippines, with Asian Development Bank slashing it to six percent and 6.2% for 2019 and 2020 (from 6.2% and 6.4% previously); and the World Bank giving a 5.8% projection this year, 6.1% for 2020 and 6.2% 2021 (from 6.4% for 2019 and 6.5% for both 2020 and 2021).

The BSP has cut benchmark rates by 75 bps thus far this year — announcing 25-bp cuts at its May 9, Aug. 8 and Sept. 26 policy meetings — to bring the interest rate on its overnight reverse repurchase facility to four percent, the overnight deposit rate to 3.5%, and the overnight lending rate to 4.5%.

These cuts partially dialled back a cumulative 175-bp increase implemented in 2018 as inflation spiked to multi-year highs. — L.W.T. Noble

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