Term deposits fetch lower yields on inflation, BSP easing bets

THE BANGKO SENTRAL ng Pilipinas’ (BSP) seven-day term deposits fetched a lower average rate on Wednesday on strong demand and expectations of benign November inflation that would lead to further monetary easing.

The central bank’s term deposit facility (TDF) attracted bids amounting to P135.643 billion, above the P80-billion offer and the P128.312 billion in tenders for the same offer volume in the previous auction. The BSP made a full award of its offer.

Accepted yields for the seven-day tenor were from 4.6% to 4.7408%, narrower than the 4.6% to 4.7497% seen last week. This caused the average rate of the one-week deposits to slip by 0.94 basis point (bp) to 4.728% from 4.7374%.

Wednesday marked the fifth week in a row that the central bank did not offer the 14-day tenor at its TDF auction.

Also, it has not auctioned off 28-day term deposits since October 2020 to give way to its weekly offerings of securities with the same tenor.

Both the TDF and BSP bills are used by the central bank to mop up excess liquidity in the financial system and better guide market rates towards the policy rate.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the weighted average accepted rate of the seven-day papers inched lower on higher demand.

Expectations that headline inflation slightly eased last month also brought yields down as this would support the case for a fifth straight rate cut at the Monetary Board’s policy meeting on Dec. 11, he said.

A BusinessWorld poll of 15 analysts yielded a median estimate of 1.6% for November inflation, within the central bank’s 1.1-1.9% forecast for the month.

If realized, last month’s inflation print would ease from the 1.7% clip in October and the 2.5% recorded a year earlier.

This would also be the slowest clip in three months or since the 1.5% seen in August and mark the ninth straight month that the consumer price index was below the central bank’s 2-4% annual target.

BSP Governor Eli M. Remolona, Jr. on Wednesday said slowing economic growth increases the chances of a rate cut at their policy meeting next week.

The central bank has slashed borrowing costs by a cumulative 175 bps since it began its easing cycle in August last year, bringing the policy rate to an over three-year low of 4.75%.

Mr. Remolona said they expect the gross domestic product (GDP) growth to be between 4% and 5% this year, well below the government’s 5.5-6.5% full-year target, as a graft scandal involving state infrastructure projects has affected economic prospects due to its impact on investor sentiment.

He added that he expects a recovery by mid-2026.

Philippine GDP growth slowed to an over four-year low of 4% in the third quarter as the corruption mess affected both public and household spending. This brought the nine-month average to 5%.

In 2024, the economy expanded by 5.7%, also falling short of the government’s 6-7% growth goal. — Katherine K. Chan