YIELDS ON the central bank’s term deposit facility (TDF) continued to slip amid higher bids and after slower inflation in April.
Total tenders for the seven-day term deposits of the Bangko Sentral ng Pilipinas (BSP) hit P181.221 billion on Wednesday, more than double the P70 billion auctioned off and also beating the P137.159 billion in bids logged last week for a P50-billion offer.
Yields sought by banks on the one-week papers came in at 2.25% to 2.29%, a slimmer band compared to the 2.25% to 2.375% range logged on April 29. This caused the average rate to settle at 2.2654%, down by 4.79 basis points (bps) from the 2.3133% fetched a week ago.
“The results in the TDF auction continue to indicate strong market interest for the BSP’s deposit facilities, supported by ample liquidity in the financial system,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.
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.
Auctions for term deposits with longer tenors of 14 and 28 days have been suspended for nearly two months already since the BSP suspended TDF offerings at the onset of the enhanced community quarantine (ECQ) in Luzon in March to support the banking system.
The EQQ was extended until end-April, with some parts of Luzon, including Metro Manila, still under ECQ until May 15, while some have since transitioned to general community quarantine (GCQ).
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said investors have been more prudent in spending and are parking their money in safer havens, which have led to higher bids and lower yields for the central bank’s TDF.
“The continued decline in the auction yield came as more businesses have been more conservative with more cash holdings amid the lockdowns, thereby making the TDF a source of relatively higher interest rate returns for excess cash holdings,” Mr. Ricafort said in a text message.
He added that yields went down due to slower inflation in April.
“The TDF yield continued to decline amid the latest easing of the inflation rate to a 5-month low of 2.2% in April 2020,” he said.
Headline inflation in April slowed from the 2.5% print in March as well as the three percent seen in the same month of 2019.
The April print was within the 1.9%-2.7% forecast range given by the BSP Department of Economic Research for the month. A BusinessWorld poll of 13 economists yielded a 2.1% median estimate for last month’s inflation.
Year to date, inflation averaged at 2.6%, still within the BSP’s 2%-4% target band and above the revised two-percent forecast for the entire 2020.
Data from the Philippine Statistics Authority showed that the decline in transport prices caused by the drop in oil prices as well as the deceleration of nonfood commodities offset faster price uptick in food and non-alcoholic beverages.
BSP Governor Benjamin E. Diokno on Tuesday said the central bank “stands ready to deploy any available measures in its toolkit as we continue to assess the impact of coronavirus pandemic on the domestic economy.” — L.W.T. Noble