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Yields on term deposits decline on post-holiday demand surge

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YIELDS ON term deposits offered by the Bangko Sentral ng Pilipinas (BSP) slipped on Wednesday as demand picked up following the holidays and with the financial system still awash with liquidity.

Total bids for the BSP’s term deposit facility (TDF) reached P867.292 billion on Wednesday, going beyond the P530-billion offering and also higher than the P531.223 billion in tenders logged on Dec. 22, the last auction in 2020.

“The results in the TDF auction reflect increased market interest for the BSP’s deposit facilities as demand for cash gradually normalizes following the December holidays,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

Broken down, demand for the seven-day term deposits amounted to P380.918 billion, surpassing the P190 billion on the auction block as well as the P159.937 billion in tenders seen in the previous offer.

Accepted rates for the one-week tenor ranged from 1.6105% to 1.7%, narrower than the previous auction’s yield margin of 1.65% to 2%. With this, the seven-day paper’s average rate stood at 1.6735%, falling by 3.8 basis points (bps) from 1.7115% seen in the previous offering.

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Meanwhile, for the 14-day papers, demand reached P486.374 billion, higher than the P340-billion offering and also more than the P371.286 billion seen for the P320 billion auctioned off on Dec. 22.

Banks asked for yields ranging from 1.6125% to 1.7125%, a slimmer band than the 1.6% to 1.7444% logged in the previous auction. This caused the two-week tenor’s average rate to slip by 1.84 bps to 1.6819% from 1.7003%.

For the 12th straight auction, the BSP did not offer 28-day term deposits following the start of its weekly offerings of short-term bills with the same tenor.

The TDF and BSP securities are among the tools used by the central bank to gather excess liquidity in the financial system and to better guide market interest rates.

“Yields mostly eased for the first auction for 2021, as the premium for short-term funds eased upon crossing the new year with the end of window-dressing and balance sheet management shortly before the accounting,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message on Wednesday.

Despite the faster inflation seen in December, the lower yields, backed by higher demand, reflect the “large excess liquidity” in the financial system, Mr. Ricafort added.

Inflation rose to 3.5% in December, quicker than the 3.3% in November as well as the 2.5% print a year ago due to the surge in food and transport prices. The December inflation print was also the fastest in 22 months or since the 3.8% reading in February 2019.

This caused headline inflation to average at 2.6% in 2020, slightly faster than the 2.5% logged in 2019 but matching the BSP’s forecast and also falling within its 2-4% target. — Luz Wendy T. Noble

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