YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) short-term securities rose for a third straight week on Friday, even as the offer was met with strong demand, following a jumbo rate hike by the Monetary Board and prospects of further tightening ahead.
The 28-day BSP bills fetched P29.265 billion in bids, exceeding the P20 billion auctioned off but down from the P31.219 billion tenders for the same offer volume in the prior week.
This was equivalent to a lower bid-to-cover ratio of 1.4633 times from 1.561 previously.
With the oversubscription, the central bank still made a full award of its P20-billion offer.
Accepted yields for the one-month bills ranged from 5.05% to 5.548%, wider and higher than the 5% to 5.148% band posted in the prior week. This caused the weighted average accepted yield for the securities to jump by 28.59 basis points to 5.3738% from 5.0879% in the previous auction.
The surge came after the BSP on Thursday delivered a surprise 50-bp rate hike and left the door open for further tightening to arrest the spread of inflation pressures, especially as a strong El Niño could further stoke consumer prices.
This brought the target reverse repurchase rate to 5.5%, the highest in nearly two years or since the 5.75% in February 2025.
This was the Philippine central bank’s first 50-bp hike in nearly four years or since February 2023 and marked the fourth consecutive meeting at which it tightened its monetary policy, bringing cumulative hikes since April to 125 bps.
Only two out of 22 analysts polled by BusinessWorld predicted the 50-bp increase, as the other 20 had penciled in just a quarter-point hike.
BSP Governor Eli M. Remolona, Jr. said there was a need for a strong response as inflation may accelerate further as the Middle East war continues to drive up oil prices, with strong El Niño conditions also likely to disrupt food supply.
The Monetary Board will hold its last meeting this year on Dec. 17.
The central bank uses the BSP securities and its term deposit facility to mop up excess liquidity in the financial system and to help guide short-term market yields towards its policy rate.
The BSP bills also contribute to improved price discovery for debt instruments while supporting policy pass-through.
The central bank began auctioning off short-term securities weekly in 2020, initially offering only a 28-day tenor and adding the 56-day bill in 2023.
It has now limited its BSP securities offerings to a single tenor to rationalize its liquidity operations and focus on tenors that would boost monetary policy transmission.
Based on its August 2026 Monetary Policy Report, the central bank’s open market operations have siphoned off P975.4 billion in liquidity from the financial system.
Of this, 14.8% was absorbed through BSP securities, while 45.6% was mopped up through the overnight reverse repurchase facility, 27.3% via the overnight deposit facility, and 12.3% from the term deposit facility.
The BSP also said that interest rates on its 28-day bills fully reflected the two 25-bp policy rate hikes it delivered in April and June. — Katherine K. Chan