Yields on term deposits decline amid BSP’s policy easing hints

Bangko Sentral ng Pilipinas main office in Manila. — BW FILE PHOTO

YIELDS on term deposits dropped on Wednesday amid signals that the Bangko Sentral ng Pilipinas (BSP) would soon begin its easing cycle.

The term deposit facility (TDF) of the BSP fetched bids amounting to P226.658 billion on Wednesday, well above the P210 billion on the auction block and the P217.774 billion for a P230-billion offer seen a week ago.

Broken down, tenders for the seven-day papers reached P110.47 billion, higher than the P100 billion auctioned off by the central bank but lower than the P113.383 billion in bids for the P110-billion offering seen the previous week.

Banks asked for yields ranging from 6.51% to 6.5412%, narrower than the 6.51% to 6.55% band seen a week ago. This caused the average rate of the one-week deposits to decrease by 0.16 basis point (bp) to 6.5336% from 6.5352% previously.

Meanwhile, bids for the 15-day term deposits amounted to P116.188 billion on Wednesday, higher than the P110-billion offering and as well as the P104.391 billion in tenders for a P120-billion offer seen on May 22.

Accepted rates for the two-week tenor were from 6.56% to 6.59%, also lower than the 6.56% to 6.6% margin seen a week ago. With this, the average rate for the term deposits slipped to 6.5761% from 6.5762% logged in the prior auction.

The two-week tenor was adjusted from the usual 14-day maturity as its settlement date was moved to June 13 due to the Independence Day holiday on June 12, the BSP said.

The BSP has not auctioned off 28-day term deposits for more than three 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 central bank to mop up excess liquidity in the financial system and to better guide market rates.

Term deposit yields went down amid rate cut signals from Monetary Board policy makers, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. this month said the Monetary Board may kick off its easing cycle by the second semester, with a 25-bp cut possible as early as their Aug. 15 meeting and one or two rate cuts expected this year.

This would mean that they could ease ahead of the US Federal Reserve, which they expect to begin cutting rates by September, Mr. Remolona said.

The Monetary Board this month kept its policy rate at a 17-year high of 6.5% for a fifth straight meeting following cumulative hikes worth 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

Finance Secretary and Monetary Board member Ralph G. Recto on Monday said the central bank could reduce the policy rate by as much as 150 bps in the next two years, adding that the BSP has room to cut starting next quarter.

A survey of private sector analysts in the BSP’s latest Monetary Policy Report also showed that the analysts expect the central bank to reduce the policy rate by 25 bps to 150 bps by the end of the year. — Luisa Maria Jacinta C. Jocson