Bids for term deposits down ahead of BSP review

DEMAND for term deposits waned this week ahead of the central bank’s upcoming policy review, with players also seeking higher yields amid uncertainty on interest rates.

Banks offered to place P65.626 billion under the term deposit facility (TDF) on Wednesday, plunging from the P95.901 billion which bids received the previous week and settling well below the P90 billion the Bangko Sentral ng Pilipinas (BSP) put up for auction.

Tenders were slashed across all tenors as banks were reluctant to lock in their funds, leaving all three undersubscribed despite a lower auction amount.

This comes a day ahead of the BSP’s policy meeting, where market players are torn on whether the central bank will keep rates steady or raise by another 25 basis points (bp). This will follow four consecutive tightening moves worth 150 bps since May, which brought benchmark yields to a 4-5% range.

Inflation steadied at 6.7% in October, while third-quarter economic growth softened to 6.1%.

Appetite for the seven-day deposits paled to P35.409 billion yesterday, down from the P50.17 billion bids received last week to settle lower than the central bank’s P50-billion offering. In turn, players asked for higher yields which averaged 4.8291%, up eight basis points from the 4.7442% fetched the previous auction.

The 14-day tenor also received softer demand this week as offers totalled P19.32 billion, slipping from P29.563 billion the prior week and failing to fill the P20billion auction amount. In turn, banks sought bigger margins to fetch a 4.8642% average, ticking higher from the 4.789% fetched during the Nov. 7 exercise.

The same trend was observed for the 28-day papers as it scraped just P10.897 billion in total tenders versus the P20 billion which the BSP offered to sell. The amount is also lower than the P16.168 billion demand seen the previous week.

Given this, players sought to maximize yields as they asked for 4.85-5% returns, hitting an average of 4.9162% from 4.901% a week ago.

Since June 2016, the central bank has been counting on the TDF to capture excess liquidity and influence short-term rates in the financial system. Through the weekly auctions, the BSP can bring market and interbank closer to its desired range by setting the standard for short-term instruments using the margins that they pay to banks for these placements.

Sought for comment, BSP Deputy Governor Diwa C. Guinigundo said market forces continue to dictate changes in TDF yields.