Term deposit rates continue to rise amid inflationary pressures

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects a continued increase in the yields of term deposits due to mounting inflationary pressures and more rate hikes by the US Federal Reserve.

BSP Deputy Governor Diwa Guinigundo said liquidity may further normalize this week after the filing of individual income tax returns with the Bureau of Internal Revenue (BIR).

With the ample liquidity, Guinigundo said term deposits may fetch higher rates on the back of accelerating inflation due to the continued normalization of interest rates in the US and the impact of the tax reform law.

“Demand for higher rate is driven by what banks believe to be mounting inflationary pressure that could warrant higher returns on top of the likelihood of a US rate hike,” he said.

The US central bank is considering raising interest rates more quickly over the medium term with the expected stronger economic growth and inflation.

The BSP expects inflation to remain elevated and may hit its peak within the third quarter due to the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

Inflation rose to 4.3 percent in March from the revised 3.8 percent in February based on 2012 prices, exceeding the full-year target of two to four percent set by the BSP.

Based on its assessment last March 22, the BSP’s Monetary Board sees inflation averaging 3.9 percent this year before easing to three percent next year.

“Based on the information we have today, we need to continue monitoring any signs of second round effects in terms of demand for higher wages and transport fare,” Guinigundo said.