Term deposit rates rise ahead of BSP meeting

MANILA, Philippines — Interest rates on term deposits were mixed at yesterday’s auction, with both the seven- and 14-day tenors commanding record high yields in anticipation of a strong monetary action by the Bangko Sentral ng Pilipinas (BSP) to curb rising inflation.

The seven-day tenor fetched a record yield of 4.3884 percent at the term deposit auction facility (TDF) yesterday, 1.4 basis points higher than last week’s 4.3744 percent, while the yield of the 14-day term deposits climbed by 1.15 basis points to an all-time high of 4.4339 percent from 4.4224 percent.

On the other hand, the rate of the 28-day term deposits slipped 0.7 basis points to 4.4754 percent from a record level of 4.4824 percent last week.

The TDF was launched in June 2016 as part of the shift to the interest rate corridor (IRC) framework to guide short-term market rates toward the BSP policy interest rate. It also serves as a liquidity absorption facility of the central bank.

The overnight reverse repurchase rate currently stands at four percent, the overnight deposit rate is at 3.5 percent while the overnight lending rate is pegged at 4.5 percent.

The facility was oversubscribed as bids reached P87.24 billion after the BSP auction committee decided to slash the offering to P70 billion yesterday from last week’s P100 billion due to tight liquidity brought about by the efforts of the central bank to smoothen the volatility of the peso in the foreign exchange market.

The seven-day tenor was oversubscribed as tenders reached P60.32 billion versus the P40 billion offering as banks positioned for a strong follow-through monetary action at the rate-setting meeting of the BSP on Sept. 27.

On the other hand, both the 14- and 28-day term deposits were undersubscribed despite the reduced volume. The auction committee also capped the increase in interest rates by partially rejecting some bids.

Tenders for the P20 billion 14-day tenor amounted to P17.44 billion but the committee only awarded P17.09 billion, while bids for the 28-day term deposits reached P9.48 billion of which only P9.28 billion were accepted under the P10 billion offering.

The BSP has so far raised benchmark rates by 100 basis points to anchor inflation back to its two to four percent target by next year.

It first lifted interest rates by 25 basis points for the first time in more than three years last May 10 followed by another 25 basis points last June 20, and by 50 basis points – the biggest increase in more than 10 years – last Aug. 9.

However, inflation leapt to a fresh nine-year high of 6.4 percent in August from 5.7 percent in July due to higher oil and food prices, weak peso, and the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion TRAIN Law.