Term deposit yield ends higher as market sees more BSP hikes

THE BANGKO SENTRAL ng Pilipinas’ (BSP) term deposits continued to fetch a higher average rate on Wednesday despite strong demand as the market expects further monetary tightening after inflation accelerated to an over three-year high in April.

Bids for the central bank’s term deposit facility (TDF) amounted to P130.585 billion, higher than the P90 billion in seven-day papers placed on the auction block and the P124.436 billion in tenders for an P80-billion offer a week ago.

This was equivalent to a bid-to-cover ratio of 1.4509 times, lower than the 1.5555 ratio recorded last week.

The BSP made a full P90-billion award of its term deposit offering.

Accepted yields for the one-week papers slightly narrowed to the 4% to 4.4965% band from 4% to 4.505% last week. With this, the average accepted rate stood at 4.4308%, inching up by 1.47 basis points (bps) from 4.4161% in the previous auction.

The average yield was slightly higher as the latest data showed that headline inflation accelerated to an over three-year high in April, “much higher versus market estimates and way above the BSP’s inflation target of 2%-4% [and] thereby could lead to more BSP rate hikes,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said via Viber.

The market is also pricing in earlier hawkish signals from the BSP, especially as the lack of a definitive peace deal between the United States and Iran has kept global oil prices volatile, he said.

Elevated oil prices as well as rising food and utility costs pushed headline inflation to 7.2% last month from 4.1% in March and 1.4% in the same month in 2025, the government reported on Tuesday.

This was faster than the 5.5% median estimate in a BusinessWorld poll of 17 analysts and the central bank’s 5.6%-6.4% estimate for the month.

April likewise marked the second straight month that the headline print was above the BSP’s 2%-4% tolerance band. For the first four months, inflation averaged 3.9%.

Analysts said the surge puts pressure on the BSP to hike rates further, and possibly more aggressively, to temper spiraling prices.

At its April 23 meeting, the Monetary Board raised benchmark borrowing costs by 25 bps for the first time since October 2023, bringing the policy rate to 4.5%.

BSP Governor Eli M. Remolona, Jr. has left the door open to more hikes to ensure inflation remains under control, with the central bank saying on Tuesday that it is ready to take “all necessary monetary actions” to bring the headline print back to its 3% target.

The central bank sees inflation averaging 6.3% this year, well above the 2%-4% tolerance range.

Meanwhile, Mr. Ricafort said high peso liquidity in the financial system likely led to sustained strong demand for the term deposit facility.

The central bank uses the TDF and BSP bills to mop up excess liquidity in the financial system and better guide market rates towards the policy rate.

The BSP 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