Term deposits attract demand
BANKS continued to crowd the one-week term deposits offered by the Bangko Sentral ng Pilipinas (BSP) this week, as players await the regulator’s decision on interest rates today.
Demand for the term deposits reached P110.185 billion on Wednesday, down from the P120.679 billion bids received the previous week. Still, the amount was higher than the P100 billion the central bank offered to sell.
More than half of the tenders placed by the banks went into the week-long papers, while the longer-dated tenors received bids below offer.
Banks wanted to place as much as P65.44 billion under a sevenday lock-in with the BSP, surging from the P51.935 billion tenders given the previous week and settling well above the P40 billion auction amount.
Despite the robust demand, players still asked for bigger returns to hit a 3.7797% average, up from 3.7405% fetched a week ago as banks sought rates ranging from 3.65-3.945%.
In contrast, the 14-day tenor saw bids slashed to P33.285 billion, slipping from the P49.801 billion tenders posted the previous week to settle below the P40 billion offer. Yields also climbed to average 3.9234%, coming from 3.9016% seen during the Aug. 1 exercise as lenders wanted returns as high as 4%.
The 28-day deposits also saw tepid demand this week, with banks only betting P11.46 billion versus the P20 billion on the auction block. Appetite grew softer compared to the P18.943 billion seen the previous week and remained undersubscribed.
These bids also came with the demand for wider margins, which rose to 3.962% from 3.9605% last week.
The term deposit facility (TDF) is currently the central bank’s main tool to capture excess money supply in the financial system. The BSP hosts the weekly auctions of short-term papers to bring market and interbank rates within its desired spread, which currently ranges from 3-4%.
The BSP has been offering P100 billion for its weekly TDF auctions since June.
The bias towards the oneweek papers comes ahead of the Monetary Board’s rate-setting meeting today, wherein market players and analysts are expecting a fresh hike from the BSP at a time of surging inflation.
More bank economists are seeing strong chances for the BSP to raise rates by 50 basis points (bp) following a higher-than-expected 5.7% inflation print in July, and given signs that prices will rise further over the coming months.
“The BSP stands ready to undertake strong follow-through monetary policy action to help ensure that 2019 inflation target is achieved,” the central bank said in a statement on Tuesday.
Benchmark rates currently range between 3-4%, following two hikes worth 25 bps each announced in May and June.
The last time the BSP raised rates by 50 bps in one go was in July 2008, which saw inflation surge to a 17-year high at 12.2% against a 3-5% target that year.
Inflation has averaged 4.5% as of end-July, well above the 2-4% target for 2018.