Banks crowd week-long term deposits ahead of rate hike

BANKS SWARMED the weeklong deposits offered by the Bangko Sentral ng Pilipinas (BSP) yesterday and shied away from longer tenors under the facility ahead of an expected rate hike next week.

Total tenders for the term deposit facility reached P87.249 billion, well above the P70 billion the central bank offered but down from the P93.128-billion bids a week ago.

However, around 70% of the offers went to the seven-day tenor, while the longer instruments were barely filled despite the lower amounts on the auction block. The BSP even rejected some placements and accepted only P86.699 billion on Wednesday.

Bids for the seven-day deposits reached P60.324 billion, almost double the P38.001 billion received a week ago to surpass the P40 billion which the BSP has offered.

Despite this, rates sought by bank inched higher to the 4.215-4.45% range. This led to a 4.3884% average yield, climbing from 4.3744% fetched a week ago.

Demand for the 14-day tenor slumped to P17.44 billion, down from the P44.949 billion tenders put forward by market players and barely filling the P20 billion up for the taking.

The BSP even opted to reject some bids and only accepted P17.09 billion as they capped margins to an average of 4.4339%, versus last week’s 4.4224%. The Sept. 19 exercise saw some banks asking for returns as high as 4.5%, the ceiling rate set by the central bank.

The 28-day papers was also met with weaker appetite. Offers reached P9.485 billion from P10.178 billion last week to barely occupy the reduced auction volume set at P10 billion. The central bank even thumbed down some tenders and took in only P9.285 billion.

On the flipside, average yields settled lower at 4.4754% from 4.4824% last week.

The TDF is currently the central bank’s main tool to capture excess money supply in the financial system. The weekly auctions of short-term papers are meant to usher market and interbank rates within the 3.5-4.5% range.

The BSP slashed auction amounts this week as they saw a smaller surplus in unused cash currently held by banks. Central bank officials said financial firms chose to deploy the money in greater lending activities as well as in buying foreign currencies, leaving smaller amounts left idle in their vaults.

For his part, BSP Deputy Governor Diwa C. Guinigundo also said last week that less excess cash meant that is actually welcome news as it meant that the economy is able to “make fuller use” of domestic money to support economic activity.

Banks also scaled down TDF placements ahead of a scheduled rate-setting meeting by the central bank on Sept. 27. Market players expect the BSP to raise rates by another 50 basis points (bp) following BSP Governor Nestor A. Espenilla, Jr.’s commitment to a “strong monetary action” after inflation surged to a fresh nineyear high in August.

Another rate hike on top of the 100bp cumulative increase this year would bring TDF yields — and eventually, market rates — to its highest point since the weekly term deposit auctions started in June 2016.