THE BANGKO SENTRAL ng Pilipinas’ (BSP) term deposits continued to fetch lower yields on Wednesday on bets of further monetary easing here and in the United States.
Bids for the central bank’s term deposit facility (TDF) amounted to P108.193 billion, above the P90 billion placed on the auction block and the P105.104 billion in bids for a P100-billion offer volume a week ago. The BSP made a full award of its offer.
Broken down, the seven-day deposits attracted P53.515 billion in bids, higher than the P40-billion offer but below the P58.145 billion seen for the same offer volume last week.
Accepted rates for the one-week securities were from 5.05% to 5.09%, narrower than the 5.03% to 5.11% margin a week earlier. With this, the weighted average accepted yield for the seven-day tenor declined by 0.81 basis point (bp) to 5.0747% from 5.0828% last week.
Meanwhile, tenders for the 14-day papers reached P54.678 billion, more than the P50-billion placed on the auction block and the P46.959 billion in bids recorded for the P60-billion offer last week.
The BSP accepted bids carrying yields ranging from 5% to 5.14%, wider and lower than the 5.05% to 5.15% band last week. As a result, the average rate of the two-week tenor slipped by 0.4 bp to 5.1074% from 5.1114% previously.
The BSP has not auctioned off 28-day term deposits for nearly 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 to better guide market rates towards the policy rate.
Term deposit yields continued to go down, tracking the decline in comparable secondary market rates, on bets of further rate cuts from the BSP and the US Federal Reserve, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
“The series of BSP rate cuts in recent months and possible BSP and Fed rate cuts in the coming months led more investors to lock in yields before they go down further,” he said.
Last month, the BSP lowered benchmark interest rates by 25 bps for a third straight meeting to bring the policy rate to 5%.
It has now slashed borrowing costs by a total of 150 bps since kicking off its rate-cut cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. has said they could deliver one more cut this year — which would likely be its last reduction for this easing cycle — to support the economy and if inflation remains manageable.
Analysts expect another 25-bp cut from the BSP at either its October or December meeting as the weak outlook for the global economy is expected to affect domestic growth prospects.
Meanwhile, the Fed last week lowered its target rate by 25 bps to the 4%-4.25% range, which was its first cut since December. This brought its total reductions since September 2024 to 125 bps.
Its “dot plot” showed projections of two more rate cuts this year.
US Federal Reserve Chair Jerome H. Powell said on Tuesday the central bank needed to continue balancing the competing risks of high inflation and a weakening job market in coming interest rate decisions, even as his colleagues staked out arguments on both sides of the policy divide, Reuters reported.
“Near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation,” Mr. Powell said in remarks that stuck close to language used last week when the central bank cut its benchmark rate a quarter of a percentage point.
The current rate is still considered high enough to lean against price pressures in the economy, but “leaves us well positioned to respond to potential economic developments. Our policy is not on a preset course,” Mr. Powell said.
While that phrase is something of a mantra for central bankers, it has taken on particular resonance now, with strong opinions emerging on both sides of the policy divide.
In remarks before Mr. Powell spoke on Tuesday, Fed Vice Chair for Supervision Michelle Bowman said the Fed could downplay concerns about persistent inflation and needed to make a commitment to cut rates in support of a job market she worries may be about to rupture.
By contrast, regional Fed Reserve Bank presidents who spoke this week recommended caution about further rate cuts while inflation remained nearly a percentage point above the central bank’s target and the impact of the administration’s tariffs and other policies is still being assessed.
The Fed next meets on Oct. 28-29, with investors assigning a high probability that officials will cut interest rates again, consistent with projections issued after last week’s meeting showing quarter-point cuts anticipated in October and December.
While job market concerns are now competing more with high inflation in the minds of Fed officials, Mr. Powell said there was no “risk-free path” for the Fed to follow at the moment.
Traders have ramped up bets on further US rate cuts, with Fed funds futures implying a 91.9% chance of a rate cut at the central bank’s October meeting, up from an 89.8% probability on Tuesday, according to the CME Group’s FedWatch tool. — Katherine K. Chan with Reuters
