Term deposit rates ease from record highs

Term deposit rates eased across the board yesterday as the Bangko Sentral ng Pilipinas (BSP) committed to bring inflation back to the two to four percent target band next year.

The yield of the seven-day term deposits eased to 3.7537 percent from a record 3.7779 percent last week, while the 14-day tenor fetched a lower rate of 3.9258 percent also from a record 3.9309 percent.

Likewise, the rate of the 28-day tenor slipped to 3.9346 percent from a record yield of 3.9442 percent last week.

No less than BSP Governor Nestor Espenilla Jr. has reaffirmed the strong commitment to ensure that inflation returns to within the target range as soon as possible after leaping to a fresh five-year high of 5.2 percent in June from 4.6 percent in May.

Espenilla described the higher-than-expected inflation in June as a setback, prompting a review and an update of the central bank’s forecast inflation path.

Inflation averaged 4.3 percent in the first six months, exceeding the two to four percent target set by the BSP.

The BSP’s Monetary Board has so far raised benchmark rates by 50 basis points through back-to-back rate hikes in May and June to curb additional inflationary pressures.

It adjusted interest rates by 25 basis points for the first time in more than three years last May 10, followed by another 25-basis point hike last June 20 as inflation expectations for this year remained elevated.

Banks continued to swarm the term deposit facility as total tenders for the P100billion auction reached P129 billion. All three tenors were oversubscribed.

BSP Deputy Governor Diwa Guinigundo said the BSP facilities under the interest rate corridor framework continue to absorb excess liquidity in the financial system.

“We are able to mop up the amount of so-called excess liquidity in the market. The liquidity that could have gone into lending, foreign exchange purchases or investments,” he said.

The P40 billion seven-day term deposits auction was oversubscribed as tenders reached P49.38 billion followed by the P40 billion 14-day term deposits with P51.39 billion.

Likewise, bids for the 28day tenor reached P28.23 billion versus the issue size of P20 billion.