Term deposits hit record yields

The yields of term deposits breached four percent to hit record levels after the Bangko Sentral ng Pilipinas (BSP) delivered the biggest rate hike in 10 years to control rising inflationary pressures.

The seven-day tenor fetched a record yield of 4.1759 percent from the previous all-time high of 3.7796 percent last week.

The yield of the 14-day term deposits hit an all-time high of 4.2449 percent from 3.9234 percent, while the 28-day tenor also hit a record 4.2844 percent from last week’s 3.9620 percent.

Banks recalibrated their bids after the central bank raised interest rates by 50 basis points last Aug. 9 to rein in inflation expectations. This was the biggest rate hike since July 2008 when monetary authorities lifted rates by 50 basis points.

So far, monetary authorities have lifted interest rates by 100 basis points this year. The BSP hiked benchmark rates by 25 basis points for the first time in more than three years on May 10 followed by another 25 basis points last June 20, and 50 basis points last Aug. 9.

It also raised its 2018 inflation forecasts to 4.9 percent and to 3.7 percent for next year.

Banks swarmed the liquidity absorption facility as bids reached P147.79 billion versus the P100 billion offering.

As usual, there was strong interest for the P40 billion offering of the shorter-dated seven-day term deposits as tenders reached P50.54 billion, while bids for the 14-day tenor amounted to P62.53 billion versus the issue size of P40 billion.

Likewise, tenders for the 28day term deposits amounted to 34.72 billion versus the issue size of P20 billion.

The TDF was launched in June 2016 as part of the shift to the interest rate corridor framework to guide short-term market rates towards the BSP policy interest rate.

It has been successful in absorbing the fresh funds amounting to P190 billion that were released into the system with the reduction of the reserve requirement ratio by 200 basis points to 18 percent from 20 percent in March and June.