Term deposit rates soar to new high

Term deposit rates soared to an alltime high in anticipation of another interest rate hike by the Bangko Sentral ng Pilipinas (BSP) this month as the August inflation continued to spiral out of control.

The seven-day term deposits climbed by 3.4 basis points to an alltime high of 4.3218 percent from 4.2878 percent last week, while yield of the 14-day tenor rose 2.31 basis points to a new record high of 4.4123 percent from the previous rate of 4.3892 percent.

Likewise, the 28-day term deposits commanded a record yield of 4.4515 percent at the term deposit auction facility (TDF) yesterday, 4.1 basis points higher than last week’s 4.4105 percent.

Yesterday’s P100 billion auction was slightly undersubscribed at P95.3 billion. The P40 billion offering of the shorter-dated seven-day term deposits was undersubscribed as bids only amounted to P31.96 billion.

Both 14- and 28-day tenors were oversubscribed. Tenders for the P40 billion 14-day term deposits reached P42.67 billion, while bids for the 28-day tenor reached P20.67 billion versus the issue size of P20 billion.

Banks continued to recalibrate their bids in anticipation of more rate hikes as inflation raced above six percent for

the first time in more than nine years.

Joey Cuyegkeng, senior economist at ING Bank Manila, said the chances of another aggressive monetary policy action have zoomed as inflation surged.

“The BSP needs to contain run-away inflation expectations and demand pull pressures. Another 50 basis point policy rate hike at the September 27 meeting is a real possibility,” Cuyegkeng said.

The economist said the efforts of government to address supply issues should eventually moderate price pressures, but the impact of second-round effects would still have to be reflected in production costs and retail prices.

According to Cuyegkeng, minimum wage increases for the National Capital Region has yet to be announced while transport groups seek another 10 to 15 percent increase in minimum fares on top of the recent increase.

“Inflation expectations remain on an uptrend and increases demand pull pressures as consumers and businesses anticipate elevated prices,” he said.

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 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.

–