YIELDS ON term deposits slipped on Wednesday ahead of the central bank’s policy review, where it is widely expected to keep rates steady to support economic recovery.
Demand for the term deposit facility of the Bangko Sentral ng Pilipinas (BSP) hit P645.342 billion on Wednesday, higher than the P520 billion auctioned off but failing to beat the P655.826 billion in tenders logged last week.
Broken down, tenders for the seven-day papers reached P220.938 billion, going beyond the P140-billion offering and also higher than the P212.281 billion seen in the previous auction.
Accepted rates for the tenor ranged from 1.7% to 1.75%, a narrower range compared with the 1.7% to 1.7999% band seen a week ago. This caused the average rate for the one-week deposits to drop by 0.88 basis point (bp) to 1.7376% from the 1.7464% quoted on June 16.
Meanwhile, the 14-day papers attracted bids worth P424.404 billion, surpassing the P380 billion on the auction block but lower than the P443.545 billion in tenders last week.
Banks asked for yields ranging from 1.75% to 1.8499%, a slimmer band versus the 1.7125% to 1.85% logged in last week’s auction. As a result, the average rate of the two-week papers slipped by 0.33 bp to 1.8085% from 1.8118% previously.
For the 35th straight week, the BSP did not offer 28-day term deposits to give way to its weekly offerings of bills with the same tenor.
The BSP uses the term deposits and the short-term bills to mop up excess liquidity in the financial system and to better guide market rates.
Rates for the term deposits were lower on Wednesday as the market was looking ahead to the BSP’s policy review on Thursday, where it is widely expected to keep borrowing costs at record lows, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.
The BSP will likely keep benchmark interest rates steady on Thursday to support the “fragile” economic recovery, with inflation improving on the back of government initiatives to ease supply issues, analysts said.
A BusinessWorld poll held last week showed 14 out of 16 analysts expect the central bank to retain its key policy rate at its record low of 2% at the Monetary Board’s fourth policy meeting for this year on June 24.
Analysts said it is crucial for the BSP to retain its accommodative stance in the meantime as the economy’s rebound from the impact of the coronavirus pandemic still has a long way to go.
The BSP slashed benchmark rates by a cumulative 200 bps last year. Borrowing costs have been at record lows since the Monetary Board’s last adjustment, which was a 25-bp cut in November.
BSP Governor Benjamin E. Diokno last week said their policy stance will be accommodative “for as long as necessary, until the economic recovery gets underway.”
Mr. Diokno likewise said the central bank has room to counteract any negative impact of the US Federal Reserve’s impending monetary policy tightening to ensure financial stability. — L.W.T. Noble