TDF remains oversubscribed but rates tumble

The central bank’s term deposit facility (TDF) continue to attract big bids at ₱274.15 billion this week and little changed from the previous ₱276.22 billion.

All TDF average rates are down, also a continuation of the January 8 falling yields.

The Bangko Sentral ng Pilipinas (BSP) offered a bigger volume on Wednesday of P160 billion compared to ₱120 billion previously.

Based on BSP data, the 7-day tenor received ₱95.28 billion in tenders during the auction, surpassing the offer of ₱60 billion. The average rate dropped to 4.0851 percent from 4.2364 percent.

The 14-day TDF, offered at ₱50 billion, had bids amounting to double of the size at ₱103.85 billion as banks swamped the tenor. Yields fell to 4.1065 percent from 4.2364 percent.

The longest-dated 28-day attracted ₱75.02 billion against offer of ₱50 billion. The average rate also slipped to 4.1502 percent from 4.2704 percent last January 8.

The BSP’s Monetary Board kept the benchmark rate at four percent at the end of 2019 after cutting interest rates by 75 basis points (bps) cumulative plus a 400 bps reduction in banks’ reserve requirement ratio (RRR) which boost liquidity in the system. Portions of these extra funds found their way back to the BSP via the TDF auction.

With the BSP’s steady inflation outlook for 2020 and 2021 – which they see averaging at 2.9 percent and well within the two-four percent target – the central bank and the market expect further monetary policy easing this quarter. The first policy meeting is on February 6.

Metrobank-affiliate First Metro Investments Corp. forecasts a 2020 inflation average of 2.5-2.8 percent. They also see the BSP further reducing the RRR by 100 bps this year, and the key rates by 50 bps.

Philippine National Bank (PNB) senior economist Jun Trinidad said near-term food price pressures due to the Taal Volcano eruption may put the inflation numbers on a temporary uptick.

“We worry that the Taal eruption may put pressure on food prices of livestock particularly chicken and hogs (as well as fish supply) since CALABARZON is a significant contributor to local production of livestock,” Trinidad said in a commentary.

He said the “high livestock food and fish prices may be allayed by low rice prices. If supply shortfall persisted, government may ease import constraints on these commodities while imposing regulatory price restraint measures in the affected areas.”

First Metro president Rabboni Francis Arjonillo, in the meantime, said inflation is predicted to “stay low” in 2020 while the exchange rate will see the peso at ₱53:$1. “The weakening of the peso is attributed to the increase in trade deficit as the government ramps up infrastructure spending this year.”

“Though we anticipate the BSP to cut reserve requirement by 1-2 percent and potentially reduce policy by 50 bps from current levels, this may be offset by inflationary pressures brought about by fortuitous events and geo-political factors,” Arjonillo added.