Term deposit yield nearly flat as mart awaits Bangko Sentral’s policy review

THE AVERAGE YIELD on the Bangko Sentral ng Pilipinas’ (BSP) term deposits was nearly unchanged on Wednesday, with investor demand for the one-week paper staying robust amid expectations of a second straight rate hike next week.

Bids for the term deposit facility (TDF) was at P162.605 billion on Wednesday for its offer worth P110 billion. This came even as the auction volume was upsized from just P90 billion last week, which drew tenders worth P157.445 billion.

This was equivalent to a bid-to-cover ratio of 1.4782 times, lower than the 1.7494 ratio last week.

Still, the BSP made a full award of its offering as the average rate was “broadly stable,” it said.

Accepted yields for the one-week deposits were from 4% to 4.459%, a tad narrower than the 4% to 4.4665% band a week ago. This resulted in a slightly higher weighted average accepted rate of 4.4392%, up 0.04 basis point (bp) from 4.4388% during the previous auction.

The marginally higher yield came ahead of a widely expected rate hike from the BSP next week as inflation remains elevated despite slowing month-on-month in May, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Most analysts expect the central bank to deliver a second straight 25-bp rate increase at the Monetary Board’s June 18 meeting, with some even penciling in a larger 50-bp hike.

This is even as headline inflation cooled to 6.8% from 7.2% in April, surprising the market. A BusinessWorld poll of 16 economists before the data release had yielded a median estimate of 7.9% for the May headline print, while the central bank saw it settling between 7.1% and 7.9%.

Despite the slower print, this marked the third straight month that the consumer price index (CPI) was above the BSP’s 2%-4% tolerance band. It also pushed the five-month average to 4.5%, already past this range.

BSP Governor Eli M. Remolona, Jr. earlier said they could take a more aggressive stance to rein in inflation and second-round price effects.

Following the May data release, the central bank said they are closely monitoring the Middle East conflict as the situation remains highly volatile. They added that the environment remains “challenging” as inflation expectations are rising due to persistent and broadening price pressures.

The BSP expects the CPI to average 6.3% this year and 4.3% next year.

The strong demand for the TDF offering also reflects excess peso liquidity in the financial system, Mr. Ricafort added.

Preliminary BSP data showed domestic liquidity grew by 12.2% to P20.348 trillion in April from P18.128 trillion in the same month last year. This was the fastest pace in over five years or since the 13.7% in August 2020.

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.

The central bank last auctioned off both the seven-day and 14-day deposits on Oct. 29. It has not offered 28-day term deposits for over five years to give way to its weekly offerings of securities with the same tenor.

In its latest Monetary Policy Report, the central bank said it limited its TDF offerings to a single tenor to rationalize liquidity operations and focus on tenors that would boost monetary policy transmission.

As of mid-February, the BSP’s market operations have absorbed P1.2 trillion in excess liquidity from the market, with 9% of this being siphoned off via the TDF. — Katherine K. Chan