THE BANGKO SENTRAL ng Pilipinas’ (BSP) term deposits fetched a slightly higher average rate on Wednesday as demand weakened and with the market expecting further monetary tightening.
Bids for the seven-day term deposit facility (TDF) amounted to P111.112 billion, higher than the P100 billion auctioned off but slightly lower than the P116.441 billion in tenders fetched for the same offer a week ago.
This was equivalent to a bid-to-cover ratio of 1.1111 times, down from last week’s 1.1644 ratio.
Despite the oversubscription, the central bank awarded only P85.702 billion in tenders.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said this came as “some higher bid yields were rejected.”
Accepted yields for the one-week deposits were from 4.985% to 5.0499%, wider and higher than the 4.98% to 5.03% range in the previous auction. This caused the weighted average accepted yield of the papers to edge up by 0.04 basis point (bp) to 5.0065% from 5.0061% in the prior week.
Mr. Ricafort said the higher TDF yield was largely driven by the anticipated rate hike by the BSP on Thursday.
“The seven-day BSP TDF average auction yield was marginally higher… a day before the widely expected BSP rate hike of at least 25 bps on Oct. 22 to better manage inflation and inflation expectations, as well as to help stabilize the peso exchange rate,” he said in a Viber message.
Based on a BusinessWorld poll conducted last week, 20 of 22 economists see the Monetary Board hiking benchmark interest rates by 25 bps for the fourth straight time, while the other two expect a larger 50-bp move.
This would bring the policy rate to either 5.25% or 5.5%.
The Philippine central bank last tightened in August, delivering a third straight 25-bp hike in a preemptive move to contain inflation risks.
BSP Governor Eli M. Remolona, Jr. has left the door open to additional increases, saying that they could keep tightening as needed to bring inflation closer to their 3% target.
In September, renewed price shocks pushed headline inflation to its fastest pace in three-and-a-half years of 7.2%. This marked the seventh month in a row that inflation was above target.
This brought the year-to-date average to 5.4%.
Mr. Ricafort added that the market also expects further rate hikes in the coming months from both the BSP and the US Federal Reserve due to growing inflation pressures, especially as global oil prices remain high due to the Middle East conflict and amid the risk of a very strong El Niño event until the first half of 2027 that could hit commodity prices.
The Fed meets Oct. 27-28 and is expected to keep rates steady at 3.75%-4%, Reuters reported. Fed officials say further hikes are likely needed and are now debating the pace and extent.
The central bank uses the TDF and BSP bills to mop up excess liquidity in the financial system and better guide market yields towards its policy rate.
It has limited its TDF offerings to a single tenor to rationalize its liquidity operations and focus on tenors that would boost monetary policy transmission.
As of mid-August, the BSP’s market operations have absorbed P975.4 billion in excess liquidity from the market, with 12.3% of this being siphoned off via the term deposit facility.
The central bank also noted that interest rates on its seven-day TDF fully reflected the two 25-bp policy rate hikes it delivered in April and June, which raised the benchmark rate to 4.75%. — Katherine K. Chan