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TDF yields down on hints of fresh RRR cut

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YIELDS ON term deposits continued to decline on Wednesday on the back of slower inflation and chances of another cut in banks’ reserve requirement ratios (RRR).

The Bangko Sentral ng Pilipinas (BSP) received bids totalling P114.777 billion for its term deposit facility (TDF) yesterday, well above the P80 billion on offer.

Wednesday’s total tenders also surpassed the P92.148 billion the BSP received last week for a P70-billion offering.

Bids for the seven-day papers totalled P38.63 billion, higher than the P30 billion on offer and also more than last week’s P34.272 billion.

Lenders asked for yields ranging from 4.125% to 4.3% for this tenor, falling from last week’s 4.175-4.4% margin, resulting in an average rate of 4.2348%, 1.53 basis points (bp) lower than last week’s 4.2501%.

Meanwhile, the two-week deposits were met with bids amounting to P43.38 billion, more than enough to fill the P30 billion the BSP placed on the auction block. This is also bigger than the P30.834 billion in bids seen last week for the central bank’s P20-billion offering.




Banks sought returns between 4.15% and 4.3%, narrower than the previous week’s 4.125-4.3499% range. This caused the average rate for the 14-day term to slip to 4.2485%, down 0.62 bp from last week’s 4.2547%.

On the other hand, the 28-day term deposits attracted tenders worth P32.767 billion against the P20 billion on offer, rising from last week’s P27.042-billion tenders.

Accepted yields were within 4.18-4.3%, narrowing from the previous auction’s 4.1-4.4% margin. This brought the one-month paper’s average rate to 4.2754%, down 2.85 bps from last week’s 4.3039%.

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.

The central bank’s policy-setting Monetary Board cut benchmark interest rates by another 25 bps at its meeting on Sept. 26, bringing the rates for overnight reverse repurchase, overnight deposit and lending to four percent, 3.5% and 4.5%, respectively, amid easing inflation.

“Term deposit facility yields fell across the board following the release of weaker-than-expected Philippine inflation report last week,” a trader said in an email.

“BSP TDF auction yields mostly eased slightly…after BSP Governor [Benjamin E.] Diokno signalled possible cut in banks’ reserve requirement ratio (RRR) for the rest of 2019 if inflation continues to ease,” Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said in an email.

Mr. Ricafort added that the stronger peso and lower oil prices also contributed to the decline in TDF yields.

Headline inflation clocked in at 0.9% in September, further easing from the 1.7% logged in August, according to data from the Philippine Statistics Authority.

The central bank announced last month that it will reduce lenders’ RRR by another 100 bps effective November to bring the reserve requirement of universal and commercial banks to 15% from 16%. The reserve ratios of thrift banks will also be cut to five percent from the current six percent, and to three percent from four percent for rural and cooperative banks.

Mr. Diokno said on Tuesday that the central bank remains open to another round of RRR cuts within the year, but noted this will be data-dependent. Meanwhile, the BSP is done cutting benchmark rates for now, he said. — Luz Wendy T. Noble

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