Term deposit yields hit record ahead of rate hike

Term deposits fetched record yields anew yesterday ahead of the much anticipated rate hike by the Bangko Sentral ng Pilipinas (BSP) to rein in inflationary expectations.

The yield of the seven-day term deposits hit a record 4.4215 percent at the term deposit auction facility (TDF) yesterday, 3.31 basis points higher than last week’s 4.3884 percent.

The 14-day tenor commanded a 3.83-basis point increase to an alltime high of 4.4722 percent from 4.4339 percent last week, while the rates of the 28-day term deposits inched up 1.23 percent to a record high of 4.4877 percent from 4.4754 percent.

The TDF was launched in June 2016 as part of the shift to the interest rate corridor (IRC) framework to guide short-term market rates toward the BSP policy interest rate. It also serves as a liquidity absorption facility of the central bank.

The overnight reverse repurchase rate currently stands at four percent, the overnight deposit rate is at 3.5 percent while the overnight lending rate is pegged at 4.5 percent.

The facility was oversubscribed anew as tenders amounted to P65.85 billion after the BSP auction committee decided to slash the offering further to P60 billion from last week’s P70 billion due to tight liquidity brought about by the efforts of the central bank to smoothen the volatility of the peso in the foreign exchange market.

The committee decided to cap the increase in the yield of the 14-day tenor to keep it within the corridor.

Investors swarmed the sevenday term deposits as bids for the P40 billion offering amounted to P51.63 billion as banks positioned for a strong follow-through monetary action at the rate-setting meeting of the BSP’s Monetary Board on Sept. 27.

On the other hand, both the 14- and 28day term deposits were undersubscribed despite the reduced volume of P10 billion for each tenor.

The auction committee also capped the increase in interest rates of the 14-day tenor as it only accepted P8.64 billion of the P9.64 billion total tenders.

Likewise, bids for the P10 billion 28day tenor only reached P4.58 billion.

Economists expect the BSP to raise interest rates by 50 basis points today to follow up on its aggressive monetary action taken last August to anchor inflationary expectations.

The BSP’s Monetary Board has so far raised benchmark rates by 100 basis points this year as inflation averaged 4.8 percent in the first eight months, exceeding the central bank’s two to four percent target.