Yields on term deposits slip on BSP easing bets

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits continued to inch lower this week as both tenors were oversubscribed and as slower May inflation boosted expectations of further cuts in benchmark borrowing costs.

Bids for the term deposit facility (TDF) reached P151.725 billion on Wednesday, higher than the P120 billion placed on the auction block but lower than the P169.771 billion in tenders seen last week for the P140-billion offer. The central bank made a full P120-billion award of the papers.

Broken down, tenders for the seven-day term deposits stood at P89.438 billion, above the P70 billion auctioned off but a tad lower than the P90.668 billion in bids seen last week for the same offer volume. The BSP awarded P70 billion worth of the one-week tenor as planned.

Banks asked for yields ranging from 5.45% to 5.5125%, slightly below the 5.05% to 5.5185% margin seen last week. This caused the average rate of the one-week term deposits to inch down by 0.35 basis point (bp) to 5.5048% from 5.5083% a week ago.

Meanwhile, the 14-day papers attracted bids worth P62.287 billion, more than the P50 billion placed on the auction block but down from the P79.103 billion in tenders fetched for the P70 billion on offer last week. The central bank likewise made a full P50-billion award of the two-week deposits.

Accepted rates were from 5.47% to 5.53%, narrower than the 5.4% to 5.545% range seen a week ago. As a result, the average yield of the 14-day deposits likewise slipped by 0.35 bp to 5.5138% from 5.5173% the previous week.

The BSP has not auctioned off 28-day term deposits for more than four years to give way to its weekly offerings of securities with the same tenor.

Both the TDF and BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market yields closer to the policy rate.

“The BSP TDF average auction yields again slightly eased for the seventh week in eight weeks after the latest benign inflation [print] in May,” Rizal Commercial Banking Corp., Chief Economist Michael L. Ricafort said in a Viber message.

This could support a possible 25-bp cut at the Monetary Board’s policy meeting next week and further reductions within this year, consistent with recent signals from the BSP chief, Mr. Ricafort said.

He added that strong demand also caused TDF yields to go down, noting that the rates for both tenors are already close to the BSP’s target reverse repurchase rate.

Philippine headline inflation eased to an over five-year low of 1.3% in May from 1.4% in April and 3.9% in the same month a year ago.

This brought the five-month average to 1.9%, a tad below the BSP’s 2-4% annual target band. The central bank expects inflation to average 2.3% this year.

Last month, BSP Governor Eli M. Remolona, Jr. said the Monetary Board could deliver two more rate cuts this year in “baby steps” or increments of 25 bps, with the next reduction on the table as early as the June 19 policy meeting.

The BSP chief said cooling inflation gives them “plenty of room” to ease their policy stance further, although they don’t want to cut “too much” as this could stoke prices anew.

In April, the Monetary Board resumed its rate-cutting cycle with a 25-bp reduction after a surprise pause in its February review, bringing the policy rate to 5.5%.

The central bank has now reduced benchmark borrowing costs by a total of 100 bps since it began its easing cycle in August last year.

Mr. Ricafort added that expectations of further monetary easing by the US Federal Reserve also caused term deposit yields to decline “as the BSP could match future Fed rate cuts to maintain healthy interest rate differentials.”

The Fed is expected to hold rates steady next week and a Reuters poll showed that analysts expect the central bank to hold that stance till September. — BVR