Yields on term deposits drop on rate, RRR cuts

YIELDS on term deposits declined on Wednesday following the central bank’s decision to cut benchmark interest rates and lenders’ reserve requirement ratios (RRR).

The central bank received bids totalling P92.148 billion for its term deposit facility (TDF) yesterday, well above the P70 billion on offer.

Wednesday’s total was also higher than the P74.465 billion the Bangko Sentral ng Pilipinas (BSP) received last week for a P90-billion offering.

Broken down, bids for the seven-day papers amounted to P34.272 billion, higher than the P30 billion on offer and also surpassing last week’s P26.616 billion.

Accepted rates for this tenor ranged from 4.175% to 4.4%, lower than last week’s 4.25-4.65% margin. This caused the average rate to end at 4.2501%, 10.88 basis points (bps) lower than last week’s 4.3589%.

Meanwhile, the 14-day papers were met with tenders amounting to P30.834 billion, filling the P20 billion the BSP placed on the auction block yesterday. This is also more than the P23.07 billion in bids seen last week for the central bank’s P30-billion offering.

Banks sought returns between 4.125% and 4.3499%, also lower than the previous week’s 4.34.65% range, resulting in an average rate of 4.2547%, down 18.44 bps from last week’s 4.4391%.

On the other hand, the 28-day deposits attracted tenders worth P27.042 billion versus the P20 billion on offer, an increase from last week’s P24.779-billion bids for a P30-billion program.

Yields sought by lenders stood between 4.1% and 4.4%, down from last week’s 4.37-4.65% margin. This brought the one-month paper’s average rate to 4.3039%, 15.38 bps lower than last week’s 4.4577%.

Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said recent cuts in policy rates and banks’ RRR affected the TDF auction results for this week.

“TDF auction yields were lower to reflect the downward adjustments brought about by the cut in BSP key overnight/policy rates. Latest cut in banks’ RRR by 100 basis points also caused the lower TDF auction yields, as this would result to about P110 billion in additional…liquidity infused into the financial system effective November,” Mr. Ricafort said in an email.

The TDF is the central bank’s primary tool to shore up excess liquidity in the financial system and to better guide market interest rates.

The central bank’s policy-setting Monetary Board cut benchmark interest rates by another 25 bps at its meeting last Thursday, bringing the rates for overnight reverse repurchase, overnight deposit and lending to four percent, 3.5% and 4.5%, respectively, amid easing inflation.

On Friday, the central bank announced it will reduce lenders’ RRR by another 100 bps, which will take effect in November. This will bring the reserve requirement of universal and commercial banks to 15% from 16%. The reserve ratios of thrift banks will also be cut to five percent from the current six percent, and to three percent from four percent for rural and cooperative banks.