Term deposit yields drop on policy bets

THE BANGKO SENTRAL ng Pilipinas’ (BSP) seven-day term deposits fetched slightly lower yields on Wednesday on expectations for further monetary policy easing.

Bids for the central bank’s term deposit facility (TDF) amounted to P162.768 billion, well above the P110 billion auctioned off and the P150.07 billion in bids for the same offer volume last week.

This was equivalent to a bid-to-cover ratio of 1.4797 times, up from the 1.3643 seen a week earlier.

The BSP fully awarded its offering of one-week papers.

Accepted yields were from 4.44% to 4.5075%, narrowing from the 4.44% to 4.5149% band recorded in the previous auction. With this, the average rate of the one-week deposits slipped by 0.28 basis point (bp) to 4.4982% from 4.501%.

The central 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.

TDF yields declined on bets that the BSP would cut benchmark rates and big banks’ reserve requirement ratios (RRR) further, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

“These could further reduce borrowing costs, help spur greater demand for loans and investments that, in turn, could help lead to faster economic growth, which has been a policy priority after softer economic growth while inflation remains relatively benign,” he said in a Viber message.

BSP Governor Eli M. Remolona, Jr. earlier said they could consider a sixth straight 25-bp cut at their first policy review this year on Feb. 19, although this could be “unlikely” as the current key rate is already close to their ideal level, signaling a nearing end to their easing cycle.

The Monetary Board has slashed key borrowing costs by a cumulative 200 bps since August 2024, bringing the policy rate to an over three-year low of 4.5%.

Analysts expect the central bank to ease its policy stance further to help support the economy amid the fallout from a graft scandal linked to allegedly anomalous flood control and infrastructure projects.

Governance concerns have stalled public spending and hit investor confidence, leading to weaker growth, which analysts expect to persist this year as issues remain unresolved.

Meanwhile, Mr. Remolona has also said that they are open to lowering universal and commercial banks’ RRR further this year as the current 5% level is “still a bit high.”

The BSP last trimmed banks’ RRR in February last year. It has delivered a total of 450 bps in cuts to big banks’ RRR since October 2024, 350 bps for digital banks, 200 bps for thrift banks, and 100 bps for rural and cooperative banks. — Katherine K. Chan