Term deposit yields move sideways on inflation report, rate cut ex-pectations

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) seven-day term deposits moved sideways on Wednesday amid strong demand and as the market reacted to faster-than-expected inflation data and monetary policy signals.

Total bids for the central bank’s term deposit facility (TDF) amounted to P127.602 billion on Wednesday, well above the P110 billion placed on the auction block and the P76.657 billion in tenders for an P80-billion of-fer of 10-day papers on Dec. 23.

This translated to a bid-to-cover ratio of 1.16 times, rising from the 0.9582 ratio recorded in the previous auction.

The BSP made a full P110-billion award of the seven-day deposits.

Accepted yields for the one-week papers were from 4.44% to 4.53%, narrowing slightly from the 4.44% to 4.55% band seen in the Dec. 23 auction. This caused the average rate of the one-week deposits to edge up by 0.23 basis point (bp) to 4.5099% from 4.5076% previously.

The BSP last auctioned off both the seven-day and 14-day deposits on Oct. 29.

It has not offered 28-day term deposits for over five years to give way to its weekly offerings of securities with the same tenor.

Both the TDF and BSP bills are used by the central bank to mop up excess liquidity in the financial system and better guide market rates towards the policy rate.

“The BSP TDF average auction yield was marginally higher… after the faster-than-expected latest inflation data at 1.8% in December,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. Despite the uptick, this was still “relatively benign” as this remained below the central bank’s 2-4% target, he said.

The December print brought the full-year average to 1.7%, the slowest annual clip since 2016. This was a tad faster than the BSP’s 1.6% full-year forecast but was also below the annual goal.

The peso’s recent weakness and its potential impact on importation costs and inflation also contributed to the slight increase in TDF yields, Mr. Ricafort added.

He said yield movements were also affected by the latest policy signals from BSP Governor Eli M. Remolona, Jr.

On Tuesday, the BSP chief said another rate cut remains on the table at the Monetary Board’s first meeting for this year scheduled for Feb. 19, but could be “unlikely” considering current data.

The Philippine central bank has so far slashed key borrowing costs by a cumulative 200 bps since it began its easing cycle in August 2024, bringing it to an over three-year low of 4.5%. — Katherine K. Chan