TERM DEPOSIT YIELDS continued to go down on Wednesday, even as the offer was undersubscribed, as inflation remained below target despite the slight uptick in June, supporting expectations of further Bangko Sentral ng Pilipinas (BSP) rate cuts.
Total bids for the BSP’s term deposit facility (TDF) reached just P139.805 billion, lower than the P150 billion placed on the auction block and the P211.651 billion in tenders seen last week for a P130-billion offer. The central bank awarded just P129.904 billion in papers as the two-week tenor went undersubscribed.
Broken down, tenders for the seven-day term deposits stood at P79.091 billion, higher than the P70 billion placed on the auction block but below the P117.092 billion in bids seen last week for a P60-billion offer. The BSP made a full P70-billion award of the one-week tenor.
Banks asked for yields ranging from 5.225% to 5.285%, narrower than the 5.2% to 5.295% margin seen last week. This caused the weighted average accepted rate of the one-week term deposits to go down by 1.54 basis points (bps) to 5.2606% from 5.276% a week ago.
Meanwhile, the 14-day papers attracted only P59.904 billion in bids, well below the P80 billion auctioned off by the BSP and the P94.559 billion in tenders fetched for the P70 billion on offer last week. The central bank awarded all the submitted bids.
Accepted rates were from 5.25% to 5.39%, tighter than the 5.2% to 5.39% range recorded a week ago. As a result, the average yield of the 14-day deposits went down by 2.07 bps to 5.3217% from the 5.3424% fetched last week.
The BSP has not auctioned off 28-day term deposits for nearly five years to give way to its weekly offerings of securities with the same tenor.
The TDF and BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market yields closer to the policy rate.
TDF yields declined further this week as the June headline inflation print was a tad lower than market expectations despite picking up from the May pace, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
This would support further rate cuts by the central bank this year, as signaled by BSP Governor Eli M. Remolona, Jr. recently, he said.
Philippine headline picked up to 1.4% in June from 1.3% in May, the government reported last week.
This was slower than the 3.7% clip in June last year and was within the central bank’s 1.1% to 1.9% forecast for the month. This was also just below the 1.5% median estimate in a BusinessWorld poll of 17 analysts.
June marked the fourth straight month that inflation settled below the BSP’s 2-4% annual target.
For the first six months, the consumer price index averaged 1.8%, slightly higher than the central bank’s baseline forecast of 1.6%.
Last week, Mr. Remolona said the central bank has room for two more rate cuts this year amid moderating inflation and weak economic growth.
The Monetary Board on June 19 delivered a second straight 25-bp reduction to bring the policy rate to 5.25%. It has now lowered benchmark interest rates by a cumulative 125 bps since it started its easing cycle in August last year.
Mr. Ricafort also noted that the TDF average yields fetched on Wednesday are now only slightly higher than the current policy rate.
He added that rates went down amid shifting bets about the pace of the US Federal Reserve’s own easing cycle.
Rate futures show traders no longer expect a Fed rate cut this month and are pricing in a total of just two quarter-point reductions by yearend, Reuters reported.
Minutes of the Fed’s June rate-setting meeting were scheduled for release on Wednesday, potentially providing more clarity on when the central bank might resume its policy-easing cycle. Its rate has been in the 4.25%-to-4.5% range since December. — A.M.C. Sy with Reuters
