Term deposit rates fetch new highs

MANILA, Philippines — Term deposits continued to fetch record yields as banks recalibrate their bids after the Bangko Sentral ng Pilipinas (BSP) delivered back-to-back rate hikes in May and June.

The seven-day term tenor fetched a record high rate of 3.7779 percent from 7523 percent last week, while the yield of 14-day term deposits hit a record high of 3.9309 percent from 3.8689 percent from 3.7342 percent.

Furthermore, the 28-day tenor also fetched a record high yield of 3.9442 percent from last week’s 3.8471 percent.

The central bank has so far raised benchmark rates by 50 basis points this year. It adjusted interest rates by 25 basis points for the first time in more than three years last May 10 to curb mounting inflationary pressures. That was followed by another 25 basis point hike last June 20 as inflation expectations for this year remained elevated.

This brought the overnight reverse repurchase rate to 3.50 percent as well as the overnight deposit and lending rates to three and four percent, respectively

Inflation inched up to a fresh five-year high of 4.6 percent in May from 4.5 percent in April on higher global oil prices as well as the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

Banks swarmed the term deposit auction facility (TDF) as total tenders for the P100-billion auction reached P125.15 billion. All three tenors were oversubscribed.

The P40 billion seven-day tenor was oversubscribed as bids amounted to P58.55 billion, followed by the P40 billion 14-day term deposits with P44.33 billion.

Likewise, bids for the 28-day tenor reached P22.27 billion against the issue size of P20 billion.

The TDF is a key liquidity absorption facility commonly used by central banks for liquidity management. In the Philippines, it was launched in June 2016 as part of the shift to the interest rate corridor (IRC) framework to guide short-term market rates towards the BSP policy interest rate.