YIELDS ON term deposits continued to decline amid steady demand as the central bank placed a higher volume on the auction block, resuming its offering of the month-long tenor after several weeks.
The Bangko Sentral ng Pilipinas (BSP) on Wednesday received total tenders worth P42.891 billion under its term deposit facility (TDF), above the P40 billion up for grabs. This was also higher than last week’s bids worth P38.540 billion, although that was against a P30-billion offer.
The central bank awarded just P17.486 billion in the seven-day papers yesterday as its P20-billion offer was undersubscribed. This was also lower than the P20.53 billion in tenders seen last week.
Accepted yields for the one-week papers ranged from 4.453%-4.76% yesterday, slightly lower than the 4.55%-4.76% margin seen at last week’s offer. This caused the average rate to settle at 4.5695%, also down from the 4.6925% seen last week.
Tenders for the 14-day papers likewise declined to P14.26 billion this week from P18.01 billion during the May 8 auction, but still filled the P10 billion the BSP offered to investors.
Returns sought by banks for parking their funds with the BSP dropped to a range of 4.5%-4.75% yesterday from 4.6%-4.76% the previous week. The average yield on the two-week tenor declined to 4.6013% from last week’s 4.6961%.
Meanwhile, the BSP saw P11.145 billion in tenders for its 29-day term deposits, slightly higher than the P10 billion on offer. Yields sought by banks ranged from 4.5%-4.75%, resulting in an average rate of 4.6495%.
The central bank placed its month-long term deposits on the auction block anew yesterday after eight weeks of not offering the tenor.
The TDF stands as the central bank’s primary tool to shore up excess funds in the financial system and to better guide market interest rates.
The BSP’s Monetary Board (MB) last Thursday cut benchmark interest rates by 25 basis points (bp) in its third policy review for the year, hours after the Philippine Statistics Authority (PSA) reported that the economy grew at 5.6% — the slowest clip in four years — last quarter and two days after the PSA said inflation eased to 3% in April — the slowest pace in 16 months.
The MB’s decision, which it said was due to a “manageable” inflation outlook, brought the interest rate on the BSP’s overnight reverse repurchase facility to 4.5% effective last Friday. The rates on the overnight lending and deposit facilities were also reduced accordingly to 5% and 4%, respectively.
This partially dialled back the cumulative 175 bps in hikes implemented by the BSP through five meetings last year as it sought to rein in inflation, which hit a peak of 6.7% in September and October.
Following its review, the BSP also lowered its 2019 inflation forecast to 2.9% from 3% in the previous meeting, but upped next year’s outlook to 3.1% from 3%. Inflation averaged at 3.6% in the first four months.
BSP Governor Benjamin E. Diokno said a potential cut in big banks’ reserve requirement ratio (RRR), currently at 18%, will be on the table at the MB’s meeting this week.
The central bank has said reducing banks’ RRR by 100 bps will release about P90 billion in liquidity into the financial system.