Yields on BSP’s term deposits up
YIELDS on term deposits climbed yesterday amid tepid demand, with banks reluctant to place their excess funds in a month-long term given uncertainties in the financial markets, particularly with a looming rate hike in the United States.
Tenders for Wednesday’s term deposit facility ( TDF) totalled P114.346 billion, slipping from last week’s P124.081 billion as the 28- day tenor remained undersubscribed. This marked the third straight time when the bids logged below the P130 billion which the Bangko Sentral ng Pilipinas (BSP) wanted to auction off, which has already been reduced from P140 billion last month.
Offers for the seven-day term deposits surged to P45.16 billion, a recovery from the previous week’s P37.57 billion and surpassing the P40 billion which the central bank placed on the auction block.
However, banks asked for higher yields for parking their excess money in the term deposits to hit a 3.4054% average, inching up from the 3.3849% rate fetched on Nov. 8.
In contrast, demand for the 28-day tenor slipped to P69.186 billion from last week’s P86.511 billion, against the P90 billion which the BSP dangled for the longer-termed instrument. Yields moved slightly higher to 3.4933% from 3.4908% previously, hovering close to the 3.5% ceiling.
Since June last year, the TDF has been the central bank’s main tool to capture excess liquidity in the financial system by allowing banks to place extra cash they hold, in exchange for a small return. Through this, the BSP expects to influence market rates to log closer to the 3% benchmark rate, coming from below the 2.5% floor of the interest rate corridor.
A central bank official said developments in the global markets have been influencing market sentiment, prompting players to take a cautious stance.
“[B]anks continue to go more short term in anticipation of the US Fed’s tightening bias,” BSP Deputy Governor Diwa C. Guinigundo said in a text message. “Banks appear to have been convinced of the BSP’s position that current monetary policy settings remain appropriate given the manageable inflation outlook, well anchored inflation expectations and favorable liquidity and credit conditions. It’s the external factors that seem to be uppermost in the calculus of the market.”
Yields on government securities have also been on an uptrend last week amid growing expectations that the global interest rates will pick up, largely due to an anticipated rate hike from the US Federal Reserve during their December policy meeting.
The central bank kept its trading, clearing and settlement operations open despite the Nov. 13-15 work suspension for the country’s hosting of the 31st summit of the Association of Southeast Asian Nations, with state leaders and dialogue partners visiting Manila.
Mr. Guinigundo previously said that there has been a “decline” in the amount of surplus money supply in the financial system, leaving banks with smaller amounts to deploy under the TDF. Offhand, the lenders may have chosen to place the idle funds for their lending activities, as well as in long-term notes offered by listed companies that offered more competitive returns.
For next week, the BSP will again be offering P130 billion in term deposits, split into P40 billion under the week- long term and P90 billion for the monthlong tenor.