THE BANGKO SENTRAL ng Pilipinas’ (BSP) term deposits fetched a slightly higher average rate on Wednesday as demand was weak before a potential third straight hike.
Bids for the term deposit facility (TDF) amounted to P105.824 billion on Wednesday, below the P120 billion in seven-day papers placed on the auction block and the P138.564 billion in tenders for the same offer volume last week.
This was equivalent to a lower bid-to-cover ratio of 0.8819 times from 1.1547 times previously.
However, the central bank awarded only P78.624 billion in term deposits to cap the rise in yields.
Accepted yields for the one-week papers ranged from 4.7225% to 4.77%, narrower and higher than the 4.7% to 4.769% band recorded in the previous auction. This caused the weighted average accepted rate of the TDF to climb by 0.66 basis point (bp) to 4.7535% from 4.7469% a week ago.
“The seven-day BSP TDF average auction yield was marginally higher week on week…, interestingly already slightly above the key BSP overnight borrowing rate of 4.75%,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
This comes ahead of the widely expected rate hike from the central bank on Thursday, he said.
A BusinessWorld poll of 24 economists and analysts show 19 expect the Monetary Board to deliver a third straight 25-bp increase at its Aug. 27 meeting, with the remaining five penciling in a pause.
Since it began tightening in April, the BSP has so far raised benchmark borrowing costs by a total of 50 bps to bring the policy rate to 4.75%.
BSP Governor Eli M. Remolona, Jr. has left the door open for further tightening as he noted that they have not seen a sustained disinflation trend.
However, he also said they may be less aggressive in containing price pressures after a dismal second-quarter growth print.
In the second quarter, Philippine gross domestic product (GDP) growth slowed to a fresh post-pandemic low of 2.3%, bringing the first-half average to 2.6%.
This came in well below the government’s 3.5%-4.5% target for the entire year.
Meanwhile, headline inflation held above the BSP’s 3% target for the fifth straight month in July, settling at 6.2%. This brought the year-to-date clip to 5%.
Expectations of a potential quarter-point rate hike by the US Federal Reserve in December also pushed the average TDF yield higher, according to Mr. Ricafort.
The Fed has held its benchmark rates unchanged for five meetings in a row, leaving it at the 3.5%-3.75% range during its latest policy review in July.
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 early June, the BSP’s market operations have absorbed P1.3 trillion in excess liquidity from the market, with 6.9% of this being siphoned off via the term deposit facility. — Katherine K. Chan
