YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits edged higher on Wednesday as the offer went undersubscribed amid fresh domestic inflation concerns following the peso’s recent weakness against the dollar and with the US Federal Reserve expected to keep rates steady in the near term amid rising consumer prices in the world’s largest economy.
Total demand for the central bank’s term deposit facility (TDF) amounted to P115.005 billion on Wednesday, below the P120-billion offering and the P138.995 billion in bids for the P150-billion offer a week ago. As a result, the BSP awarded only P109.937 billion in short-term papers.
Broken down, tenders for the seven-day papers reached just P59.433 billion, a tad lower than the P60 billion placed on the auction block and also below the P79.091 billion in bids for the P70-billion offer the previous week. The central bank accepted only P55.365 billion in bids for the one-week tenor.
Accepted yields ranged from 5.23% to 5.28%, a slightly narrower band compared with the 5.225% to 5.285% seen a week ago. With this, the average rate of the one-week term deposits inched up by 0.09 basis point (bp) to 5.2615% from 5.2606% previously.
Meanwhile, the 14-day papers fetched bids amounting to P55.572 billion, also below the P60-billion offer and the P59.904 billion in tenders for the P80 billion placed on the auction block a week ago. The BSP awarded just P54.572 billion in two-week term deposits.
Tenders accepted had rates ranging from 5.265% to 5.425%, higher than the 5.25% to 5.39% band seen last week. This caused the average rate of the two-week papers to go up by 0.7 bp to 5.3287% from 5.3217% in the prior auction.
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.
Both 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 rates toward the policy rate.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said TDF rates were slightly higher as the offer was met with lower demand compared to the previous week.
“The BSP TDF average auction yields corrected marginally higher after the US dollar-peso exchange rate went up to new three-week highs and also among three-month highs at P56.90 levels lately, as this could lead to higher importation prices and some pickup in overall inflation,” Mr. Ricafort said in a Viber message.
On Wednesday, the peso extended its losing streak to a third straight session, closing at a three-week low of P57.085, with safe-haven demand due to uncertainties surrounding the Trump administration’s tariff policies propelling the US dollar.
Tariff woes have also led to inflation concerns in the US, causing markets to recalibrate their bets on the Fed’s easing cycle, Mr. Ricafort added.
Early on Wednesday, the dollar climbed to its firmest against the yen since early April after US inflation suggested tariffs are pushing prices up, dampening expectations for Federal Reserve policy easing, Reuters reported.
US Treasury yields ticked to the highest in more than a month, lifting the dollar against the yen in particular.
Data on Tuesday showed US consumer prices rose 0.3% in June, in line with forecasts, but the largest gain since January. Economists attributed the rise in prices across goods such as coffee and home furnishings to the Trump administration’s escalating import tariffs.
The Fed has been keeping interest rates steady as it has waited for indications of the inflationary impact from tariffs, which Chair Jerome H. Powell had said he expected in the summer.
Traders currently price in 44 basis points of US rate reductions for the rest of this year, with 56.5% odds of a quarter-point cut in September.
Investors will now carefully monitor producer price data due later on Wednesday, looking for signs of whether inflationary pressures are also building on the factory floor.
US 10-year Treasury yields rose as high as 4.495% on Wednesday, the highest since June 11.
The dollar stuck close to a multi-week high against major peers. The dollar index was little changed at 98.525 after rising as high as 98.699 on Tuesday for the first time since June 23.
The US currency was steady at 148.835 yen and earlier rose to 149.19 yen for the first time since April 3, in the aftermath of US President Donald J. Trump’s “Liberation Day” tariff announcement.
In trade, Indonesia said on Wednesday it had reached a deal with the United States after an “extraordinary struggle” in negotiations which resulted in a reduction of proposed US tariff rates on Indonesian goods to 19% from 32%. — Luisa Maria Jacinta C. Jocson with Reuters
