Term deposit yields go down as inflation slows

YIELDS on the central bank’s term deposits dropped on Wednesday following better-than-expected September inflation data that could strengthen the case for further policy easing.

The term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) fetched bids amounting to P251.112 billion on Wednesday, above the P190-billion offering and the P239.098 billion in tenders for the same volume auctioned off a week ago.

Broken down, tenders for the seven-day papers reached P137.878 billion, higher than the P100 billion auctioned off by the central bank and the P120.556 billion in bids for the same offer volume seen the previous week.

Banks asked for yields ranging from 6.25% to 6.28%, lower than the 6.2575% to 6.3% band seen a week earlier. This caused the average rate of the one-week deposits to decline by 1.22 basis points (bps) to 6.2668% from 6.279% previously.

Meanwhile, bids for the 14-day term deposits amounted to P113.234 billion, above the P90-billion offering but below the P118.542 billion in tenders for the same amount auctioned off on Oct. 2.

Accepted rates for the tenor were from 6.25% to 6.36%, also lower than the 6.3% to 6.38% margin seen a week ago. With this, the average rate for the two-week deposits fell by 2.4 bps to 6.3361% from 6.3601% logged in the prior auction.

The central bank has not auctioned 28-day term deposits for nearly four years to give way to its weekly offerings of securities with the same tenor.

The term deposits and the 28-day bills are used by the BSP to mop up excess liquidity in the financial system and to better guide market rates.

Term deposit yields went down following slower-than-expected September inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Ricafort said this could “possibly justify more aggressive monetary easing measures or a possible 50-bp local policy rate cut as reiterated by Finance Secretary Ralph G. Recto recently to match the latest Fed rate cut.”

Philippine headline inflation slowed to 1.9 % year on year in September from 3.3% in August and 6.1% a year ago.

This was below the central bank’s 2%-2.8% forecast for the month and the 2.5% median estimate yielded in a BusinessWorld poll of 15 analysts.

It was also the slowest in over four years or since the 1.6% in May 2020.

Inflation averaged 3.4% in the first nine months, matching the central bank’s full-year forecast.

BSP Governor Eli M. Remolona, Jr. has said the Monetary Board could slash benchmark interest rates by 50 bps more this year and deliver two more 25-bp cuts at its next two meetings scheduled for Oct. 16 and Dec. 19.

The central bank began its easing cycle in August, cutting its policy rate for the first time in nearly four years by 25 bps to 6.25% from the over 17-year high of 6.5%. — Luisa Maria Jacinta C. Jocson