Term deposit yield edges up on BSP hike bets

THE CENTRAL BANK’S one-week term deposits fetched a slightly higher average yield on Wednesday ahead of an expected rate hike by the Monetary Board and amid continued uncertainty over the Middle East war.

The Bangko Sentral ng Pilipinas’ (BSP) seven-day term deposit facility (TDF) drew P94.191 billion in tenders, more than the P80-billion plan but below the P159.177 billion in bids for a P70-billion offer last week.

This translated to a bid-to-cover ratio of 1.1774 times, lower than 2.274 a week ago.

Still, the BSP fully awarded its offering, albeit with a slightly higher average rate.

Accepted yields for the one-week papers widened to the 4% to 4.2599% range from the 4% to 4.215% margin in the previous auction. This resulted in a weighted average accepted rate of 4.2063%, 0.99 basis point (bp) higher than the 4.1964% recorded last week.

The average TDF yield edged up on expectations of a rate hike by the central bank at Thursday’s policy meeting as the Middle East conflict is expected to continue pushing up domestic inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A BusinessWorld poll showed that 11 out of 19 analysts expect the Monetary Board to hike the target reverse repurchase rate by 25 bps at this week’s meeting. This would bring the benchmark rate to 4.5% and mark the BSP’s first tightening move since October 2023.

BSP Governor Eli M. Remolona, Jr. earlier told BusinessWorld that they have room to raise rates to temper growing inflation risks amid the Middle East conflict.

He added that second-round effects may emerge sooner than expected as the global oil shock is expected to spill over into domestic food and transport prices.

The TDF auction result also reflects lingering market caution over the war despite the extended ceasefire between the United States and Iran, Mr. Ricafort said.

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 its 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. — Aaron Michael C. Sy