Yields on term deposits inch up

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By Melissa Luz T. Lopez, Senior Reporter

APPETITE FOR term deposits picked up this week, pushing yields slightly higher as banks sought bigger returns for their excess cash.

Bids for the term deposit facility (TDF) rose to P68.09 billion on Wednesday, rising from P51.196 billion the previous week to surpass the P50 billion which the Bangko Sentral ng Pilipinas (BSP) wanted to sell.

Demand went up across all tenors, with market players particularly gunning to get their funds parked under the one and two-week placements. The surge in tenders come a week after the Monetary Board’s decision to keep benchmark interest rates unchanged, with the view that inflation is becoming more manageable.

The seven-day papers received P28.079 billion in total offers, higher than the P22.593 billion tenders the previous week to fill the P20 billion which the central bank wanted to sell. Meanwhile, banks sought better margins for their TDF placements, with the week-long tenor climbing to a 5.1565% average versus 5.1411% a week ago.

Banks also grew more comfortable in locking in their loose cash for two weeks, as they put forward P27.259 billion tenders under the 14-day tenor. Demand grew from P16.9 billion last week to fill the P20-billion auction size.

Rates fetched for these papers rose to 5.1828% as lenders asked for returns from a narrow 5.125-5.22% range. This was higher than the 5.1765% average during the Feb. 6 exercise.

The 28-day notes also saw total offers increase to P12.752 billion from the P11.703 billion received previously, settling above the P10 billion up for sale. The average yield also inched higher to average 5.1839% from last week’s 5.1788%.

The TDF has been the central bank’s main channel in mopping up excess funds in the financial system. Through the weekly auctions, the BSP wants to bring market and interbank rates closer to its desired range through the yields which they accept.

The central bank on Thursday voted to keep policy settings unchanged at 4.25-5.25%, with the view that there is room to watch how previous rate hikes will be absorbed by the system now that inflation is clearly on its way down. Any adjustments to the benchmark borrowing rates will also affect acceptable yields under the TDF, as yields are based on the key rates set by the BSP.

BSP Deputy Governor Diwa C. Guinigundo said the latest TDF results dispel speculations of “tight” money supply conditions.

“As we indicated in previous TDF auctions, domestic liquidity remains ample. This is clearly shown by the oversubscription across all tenors [yesterday],” Mr. Guinigundo said in a text message to reporters, noting that liquidity has returned after the holiday demand and with sustained state disbursements.

“The market should understand that timing should be considered when observing monetary conditions.”

“There will be more permanent reduction in system liquidity if the BSP starts selling FX to the market and keeps the proceeds, reflecting negative market sentiment and leading to some sustained capital outflow. This is clearly not the case today,” he added.

Mr. Guinigundo also noted that the market may appear “low on liquidity” once the Bureau of the Treasury completes a fund-raising exercise, but he clarified that the money will eventually be released to the system once the budget for state projects are released. The funds will then find their way back to the banks as deposits, which will then support greater lending.

These remarks come after some market watchers insist that it is time for the BSP to release additional money supply via cuts in banks’ reserve requirement ratio. A one percentage point reduction in the reserves will unleash roughly P100 billion to the financial system.