Term deposit rates retreat

MANILA, Philippines — Term deposit rates eased across the board after the Bangko Sentral ng Pilipinas (BSP) slashed interest rates by 25 basis points last week, marking the reversal of its tightening cycle that saw benchmark rates rise by 175 basis points last year.

The yield of the seven-day term deposits eased 12.3 basis points to 4.5695 percent yesterday from 4.6925 percent last Wednesday, while the 14-day tenor fetched 4.6013 percent, 9.48 basis points lower than last week’s 4.6961 percent.

On the other hand, the 28-day term deposits fetched 4.6495 percent yesterday or 44.92 basis points lower than the 5.0987 percent yield when it was last offered on March 20.

The term deposit auction facility (TDF) was oversubscribed yesterday as tenders for the three tenors reached P42.88 billion versus the issue size of P40 billion.

Both the 14- and 28-day tenors were oversubscribed as bids for the 14-day amounted to 14.26 billion compared to the volume of P10 billion, while tenders for the 28-day term deposits reached P11.14 billion versus the P10 billion issue size.

On the other hand, the P20-billion seven-day offering was undersubscribed with bids amounting only to P17.48 billion.

Banks welcomed the decision of the BSP to slash interest rates by 25 basis points last Thursday on the back of easing inflation as well as lower-than-expected gross domestic product (GDP) growth.

Inflation slowed down for six straight months to hit a 16-month low of three percent in April after peaking at 6.7 percent in September and November last year.

This brought the average inflation to 3.6 percent in the first four months of the year, well within the BSP’s two to four percent target range.

On the other hand, the country posted the slowest economic expansion in four years with the GDP growth of only 5.6 percent in the first quarter from 6.3 percent in the fourth quarter of last year.

BSP Governor Benjamin Diokno had said authorities would tackle the possible reduction of the reserve requirement ratio or the level of deposits banks are required to keep with the central bank this week.

About P90 billion worth of additional funds would be freed up for every 100 basis points reduction in the RRR level that could help boost economic activities.