Bids for 28-day deposits decline further after Federal Reserve hike

THE CENTRAL BANK’S auction of term deposits yesterday fetched mixed results as yields for the week-long tenor dipped below 3%, while rates climbed for the month-long instruments following higher interest rates in the United States.

Term deposits on offer on Wednesday received P161.678 billion in total demand, well below the P180 billion which the Bangko Sentral ng Pilipinas (BSP) placed on the auction block. Half of the tenders competed for the oneweek tenor, driving rates below the benchmark rate set by the central bank.

Bids for the seven-day term deposits swelled to P78.328 billion, nearly double the P40- billion auction volume and the P64.74 billion tenders received during the previous auction. With the continued oversubscription, the average yield for the week-long term dipped to 2.9904% coming from 3.0648% fetched during the June 14 offer.

Meanwhile, demand for the 28- day tenor slipped to P83.35 billion from last week’s P95.672 billion, again failing to cover the P140 billion which the BSP wanted to sell.

Banks asked for returns ranging from 3.4-3.5%, which pushed the average rate to 3.4889% from 3.4882% previously. This hovered closer to the BSP’s 3.5% ceiling under the interest rate corridor scheme.

The term deposit facility ( TDF) is currently the central bank’s main tool to capture excess money supply in the financial system by allowing banks to place their idle funds with the BSP — those which are not utilized for loans or set aside as reserves — in exchange for a small return.

BSP Governor Amando M. Tetangco, Jr. has said that there has been sustained market demand in favor of shorter-termed instruments in recent weeks, with strong preference towards the week-long term deposits over the month-long papers.

The Federal Reserve raised interest rates by 25 basis points last week, following a similar move in March as officials remained optimistic towards the US economy despite mixed economic data.

A similar trend was observed for Treasury bills auctioned on Monday, which saw yields on the tenors barely changed on the back of overwhelming demand for the 91-day, 182-day, and 364day debt notes.

For next week, the central bank kept the auction volumes unchanged at P40 billion for the week-long tenor and P140 billion for the month-long deposits.

Mr. Tetangco said the BSP continues to review the calibration of the TDF, although current settings remain appropriate for now.