TDF bids and rates up at BSP auction

The central bank’s auction of term deposit facility (TDF) this week had higher tenders and yields ahead of Thursday’s (today’s) Monetary Board policy meeting, its eighth and last for the year.

Most market analysts however expect a no-change monetary policy stance on December 13 (today) since with November’s lower inflation rate of six percent from SeptemberOctober’s 6.7 percent peak, the Bangko Sentral ng Pilipinas (BSP) has leeway to “enact a hawkish pause,” according to ING Bank senior economist, Nicholas Mapa.

“After hiking rates by a cumulative 175bp (basis points) over the course of its last five meetings, the BSP will likely enact a hawkish pause. We expect it to keep rates unchanged while simultaneously retaining its hawkish bias by pledging to act against signs of price pressure if these become apparent,” said Mapa yesterday. “Pausing on December 13 will give the general economy some breathing room. It would also keep the market on its toes by displaying the BSP’s readiness to act to safeguard the inflation target.”

The BSP’s auction-based open market operation or the TDF, has been aptly reflecting the central bank policy rate which is the overnight reverse repurchase or RRP which is at 4.75 percent after the 175bps increase since May this year.

During Wednesday’s TDF auction, total tenders increased to 185.06 billion against total offer of 170 billion, while average rates also increased across all three tenors. Bids were more than the previous week’s 169.64 billion.

The 7-day TDF, offered at 140 billion, attracted higher bids this week of 152.17 billion versus 136.40 billion last week. Yields were also higher at 5.1135 percent from 5.0168 percent.

The 14-day tenor, offered at 120 billion, fetched 121.18-billion tenders, also higher than the previous Wednesday’s 120.06 billion. The average rate rose to 5.1649 percent from 5.1271 percent.

The 28-day term deposit, offered at 110 billion, had 111.71-billion bids from 113.18 billion last December 5. Yields went up to 5.1952 percent from 5.1433 percent.

Mapa said that while the market consensus is that the BSP will not move rates today (Thursday), the BSP could still decide to do another 25bps increase after noting Governor Nestor A. Espenilla Jr.’s statement earlier that “managing inflation expectations remains crucial.”

“Should the BSP believe that accelerating core inflation reflects a worrisome build-up in unwarranted price increases, the central bank may look to enact another ‘proactive’ tightening,” said Mapa. “However, with food and energy costs dissipating, BSP concerns over rising core inflation might not be warranted – inflation is expected to edge back within target over the policy horizon, with the base effects of tax adjustments for alcohol, beverages and tobacco fading in 2019.”