Yields on term deposits down as demand drops

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By Melissa Luz T. Lopez, Senior Reporter

BANKS TRIMMED their placements in term deposits yesterday ahead of the long weekend, which drove yields down from last week’s all-time high.

Demand for term deposits offered by the Bangko Sentral ng Pilipinas (BSP) dropped to P59.428 billion on Wednesday from the P98.361 billion received last week. This also settled below the P70 billion the central bank wanted to sell.

Tenders dropped across all tenors, with the one-week papers posting the biggest decline compared to the previous offering.

Banks only wanted to park P28.894 billion under the seven-day term, just half the P54.186 billion placements put forward a week ago. The amount also settled lower than the P40 billion which the BSP placed on the auction block.

Despite the tepid demand, lenders even asked for lower yields at 4.942% to slide from the 4.9738% fetched the previous week. This comes ahead a Friday holiday for Bonifacio Day.

The 14-day tenor also saw weak demand, with lenders only willing to lock in P19.837 billion versus P29.762 billion last week.

This settled below the BSP’s P20 billion offering.

Banks, however, wanted bigger returns at a 5.0715% average, marginally higher than the 5.0596% rate seen previously.

Appetite for the 28-day papers also dropped to P10.697 billion from last week’s P14.413 billion, but managed to fill the entire P10-billion offering made by the central bank. Still, rates fetched this week inched lower to 5.1103% compared to 5.1186% seen during the Nov. 21 exercise.

The term deposit facility has been the central bank’s main avenue in mopping up excess liquidity and influence short-term interest rates. Through the weekly auctions, the BSP can bring market and interbank rates closer to its desired range by setting the standard for short-term instruments via the margins that they pay to banks for these placements.

Yields fetched last week surged to all-time highs as lenders took advantage of another rate hike from the central bank.

Policy makers raised benchmark yields by another 25 basis points on Nov. 15, marking the fifth straight hike from the BSP this year. The increase was dubbed as a “proactive” move amid volatilities in the external market, which brought benchmark rates between 4.25-5.25%.

BSP Deputy Governor Diwa C. Guinigundo said banks likely chose to hold on to more cash to service a bigger volume of client transactions, which usually trend higher during the Christmas season.

“Market appears confident about the positive prospects of lower inflation for the rest of 2018 and the next two years. Hence, they can afford to have a slightly longer view,” Mr. Guinigundo said. “But in the case of seven days, their placement must really be their excess liquidity after making some allowance for the long weekend.”