THE AVERAGE YIELD on the Bangko Sentral ng Pilipinas’ (BSP) term deposits inched up on Wednesday despite strong demand as the market anticipates another policy rate hike next week.
The central bank’s term deposit facility (TDF) drew a total of P116.441 billion in bids for the seven-day papers on Wednesday, exceeding the P100 billion placed on the auction block and the P113.386 billion in bids for the same offer volume last week.
This translated to a slightly higher bid-to-cover ratio of 1.1644 times from 1.1339 previously.
As a result, the central bank awarded its entire P100-billion offer.
Accepted yields for the one-week deposits ranged from 4.98% to 5.03%, a tad narrower than the 4.975% to 5.03% a week ago. With this, the weighted average accepted rate inched up by 0.33 basis point (bp) to 5.0061% from 5.0028% in the previous auction.
TDF yields went up as the market priced in a fourth consecutive tightening move at the BSP’s upcoming policy review next week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.
“The seven-day BSP TDF average auction yield was marginally higher… ahead of the next BSP rate-setting meeting on Oct. 22, 2026, when there could be another 25-bp BSP rate hike,” he said in a Viber message.
A fourth straight rate hike, according to Mr. Ricafort, will allow the central bank to contain inflation risks, support the weak peso, and maintain a healthy interest rate differential with the US Federal Reserve.
The BSP’s policymaking Monetary Board will meet on Oct. 22, where economists and market analysts expect them to raise their benchmark rate anew.
Since it began tightening in April, the Philippine central bank has delivered a total of 75 bps in hikes to bring its key policy rate to an over one-year high of 5%.
BSP Governor Eli M. Remolona, Jr. has left the door open to further hikes following their August meeting, noting that they could keep tightening as needed to steer inflation closer to their 3% target.
Inflation has been above its goal for seven consecutive months, accelerating to its fastest pace in three-and-a-half years of 7.2% in September. The headline print stands at a year-to-date average of 5.4%.
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 earlier said that it 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 said interest rates on its seven-day TDF already fully reflect the two 25-bp policy rate hikes it delivered in April and June, which raised the benchmark rate to 4.75%. — Katherine K. Chan