YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits fell on Wednesday on strong demand for short-term papers amid expectations of further monetary easing.
Bids for the central bank’s term deposit facility (TDF) reached P188.91 billion, well above the P130 billion auctioned off and the P140.077 billion in tenders seen last week for a P100-billion offer. Both tenors were oversubscribed, leading to a full award of the offering.
Broken down, the seven-day deposits fetched P87.195 billion in bids, higher than the P60 billion placed on the auction block and the P56.8 billion in tenders for a P50-billion offer a week ago.
Accepted yields were from 4.75% to 4.92%, lower and wider than the 5.03% to 5.08% band seen the week prior. This caused the weighted average accepted rate for the one-week papers to decline by 21.03 basis points (bps) to 4.8487% from 5.059% previously.
Meanwhile, the 14-day papers attracted P101.715 billion in demand, more than the P70 billion on offer and the P83.277 billion in tenders seen the previous week for the P50 billion placed on the auction block.
Banks asked for rates ranging from 4.767% to 4.95%, declining and widening from the 5.06% to 5.09% margin recorded a week earlier. This caused the average rate of the two-week deposits to fall by 20.59 bps to 4.874% from 5.0799%.
The BSP has not auctioned off 28-day term deposits for 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 average auction yields were again slightly lower week on week after the latest and largely unexpected 25-bp BSP rate cut to a new three-year low of 4.75% on Oct. 9,” Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.
“BSP Governor Remolona gave more dovish signals lately compared to previous statements… Thus, another 25-bp BSP rate cut is possible in the next rate-setting meeting on Dec. 11,” he said. “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 in the coming months.”
Last week, the Monetary Board cut benchmark interest rates by 25 bps for a fourth straight meeting to bring the policy rate to 4.75%. It has now slashed borrowing costs by a cumulative 175 bps since kicking off its easing cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. said further rate cuts are possible until next year as inflation remains manageable and as they want to support growth as the widening corruption scandal involving government infrastructure projects has affected business sentiment and the outlook for the economy, adding that they are now looking at a neutral rate between 4% and 5%.
Analysts now expect the BSP’s rate-cut round to continue until early next year, with most expecting a terminal rate of 4.25%.
Meanwhile, US Federal Reserve Chair Jerome H. Powell left the door open to further rate cuts on Tuesday and said the end of the central bank’s long-running effort to shrink the size of its holdings may be coming into view, Reuters reported.
His comments, viewed by some as dovish, lifted markets slightly and reinforced expectations of more easing this year, with roughly 48 bps worth of cuts priced in by December.
The Fed cut its benchmark policy rate by a quarter of a percentage point to the 4%-4.25% range at its meeting last month. — Katherine K. Chan with Reuters
