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TDF yields rise ahead of expected BSP tightening

BW FILE PHOTO

YIELDS on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) continued to rise on Wednesday, with both tenors undersubscribed, on expectations of a big rate hike next week.

Total bids for the central bank’s term deposits reached P337.24 billion, below the P380-billion offer for the week. Still, this was higher than the P261.287 billion in tenders seen last week for the same offer volume.

Broken down, the seven-day papers fetched bids amounting to P203.107 billion, lower than the P240 billion auctioned off by the BSP. This was above the P144.578 billion in tenders logged in the previous auction, where the BSP offered P220 billion.

Banks asked for yields ranging from 4.899% to 5.35%, a higher margin compared with the 4.8% to 5.15% band seen a week ago. This caused the average rate of the one-week paper to climb by 10.99 basis points (bps) to 5.0668% from 4.9569% previously.

Meanwhile, demand for the 14-day term deposits amounted to P134.133 billion, below the P140-billion auctioned off by the BSP but higher than P116.709 billion in tenders recorded a week ago for a P160-billion offer.

Accepted rates for the papers were from 4.95% to 5.625%, a wider band versus the 4.75% to 5.35% range seen on Nov. 2. With this, the average rate of the two-week deposit rose by 22.32 bps to 5.2799% from 5.0567% in the previous week’s auction.    

The central bank has not auctioned 28-day term deposits for more than a year to give way to its weekly offering of securities with the same tenor.

The term deposits and the 28-day bills are used by the BSP to mop up excess liquidity in the financial system and to better guide market rates.

“The BSP maintained the TDF volume offer at P380 billion but reallocated P240 billion (from P220 billion) to the 7-day tenor and P140 billion (from P160 billion) to the 14-day tenor,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday. “The auction was undersubscribed with bid-to-cover ratios at 0.85x and 0.96x the respective volume offerings in the 7-day and 14-day tenors.”

“The results of the TDF auction continue to show ample liquidity in the financial system as eligible market participants price in their expectations of a rate hike from the BSP,” Mr. Dakila said. “Looking ahead, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments.”

Yields on the BSP’s term deposits were higher after the central bank chief said the Monetary Board will deliver a big rate increase during its next policy-setting meeting, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Felipe M. Medalla last week said the Monetary Board will hike benchmark interest rates by 75 bps at its Nov. 17 meeting to keep in step with the US Federal Reserve as it seeks to stabilize prices.

The Philippine central bank has raised rates by 225 bps since May, while the Fed has delivered hikes worth 375 bps since March.

Philippine headline inflation surged to 7.7% in October, its quickest pace in almost 14 years, from 6.9% in September and 4% in October 2021.

For the first 10 months, inflation averaged 5.4%, still lower than the BSP’s 5.6% full-year forecast but higher than its 2-4% target. — Keisha B. Ta-asan

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