Yields on term deposits mixed ahead of BSP’s policy meeting

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By Melissa Luz T. Lopez, Senior Reporter

TERM DEPOSITS offered by the Bangko Sentral ng Pilipinas (BSP) saw mixed movements in yields this week, which comes a day ahead of a rate-setting meeting.

Banks put forward P65.53 billion bids for the term deposit facility (TDF) on Wednesday, posting a slight dip from the P66.349 billion demand seen a week ago.

Still, the amount surpassed the P50 billion which the central bank wanted to raise.

Appetite for the short-term papers softened from a week ago as the BSP brought back the one-month tenor, which was not offered last week to make way for the settlement of five-year retail Treasury bonds offered by the national government.

The Treasury raised P235.935 billion from the sale of five-year debt notes to the public, which were settled last week and captured cash flows.

Banks offered to place P27.254 billion under the seven-day term, inching lower from the P34.296 billion tenders received a week ago. Still, this stood well above the P20 billion which the BSP placed on the auction block.

Market players even asked for lower returns to average 4.9803% versus the 5.0214% fetched last week.

Appetite also weakened for the 14-day placements as bids went down to P22.198 billion, lower than the P32.053 billion fetched previously, although still filling the P20 billion on offer.

However, the average yield climbed to 5.1079% from last week’s 5.0975%.

Other bids were channeled back to the 28-day instruments as it shored up P16.078 billion tenders, filling the BSP’s P10-billion offer. The tenor fetched an average return of 5.0987%. Two weeks ago, the month-long papers came with a 5.1758% price tag.

The TDF has been the central bank’s primary tool to shore up excess funds in the financial system.

Through the weekly auctions, the BSP is eyeing to bring market and interbank rates closer to their desired range through the yields which they accept.

Banks have been parking more funds under the TDF since the Monetary Board voted to keep interest rates at the 4.25-5.25% range during the Feb. 7 meeting, which is also used as the benchmark for term deposit rates.

The central bank will hold its second rate-setting meeting for the year today, which will be the first to be led by new BSP Governor Benjamin E. Diokno.

The former Budget chief said last week that “there is room” to reduce interest rates amid declining inflation, alongside plans to cut the reserve requirement ratio (RRR) for banks.

Mr. Diokno had said the 18% RRR is “very high,” and hinted at possible successive reductions worth one percentage point every quarter for the next four quarters. Every one percentage point decline in the RRR would unleash around P100 billion to the economy, which can be deployed to additional lending and will therefore reduce the cost of borrowing money.

Ten of 13 economists tapped for BusinessWorld’s poll said they expect the BSP to stay on hold on key rates, while three saw a chance for policy makers to start unwinding the 175-basis-point rate hikes unleashed last year to combat surging prices.

BSP Deputy Governor Diwa C. Guinigundo has repeatedly said that the financial system remains liquid, with the weekly TDF surpluses proving banks continue to sit on piles of cash.