YIELDS on the term deposits continued to go down on Wednesday amid the Bangko Sentral ng Pilipinas’ (BSP) dovish stance and before an expected rate cut by the US Federal Reserve.
The central bank’s term deposit facility (TDF) attracted bids amounting to P142.886 billion, above the P130 billion on the auction block but lower than the P165.488 billion seen a week ago for the same offer volume. The BSP accepted only P128.126 billion in bids as it partially awarded the 14-day tenor, which went undersubscribed.
Broken down, tenders for the seven-day papers reached P74.76 billion, higher than the P60 billion auctioned off by the central bank and the P74.602 billion in bids logged last week for the same offer volume. The BSP made a full P60-billion award of the one-week term deposits.
Banks asked for yields ranging from 4.79% to 4.825%, narrower than the 4.76% to 4.88% band seen a week ago. This caused the weighted average accepted rate of the one-week deposits to go down by 1.75 basis points (bps) to 4.8073% from 4.8248% the previous week.
Meanwhile, bids for the 14-day term deposits amounted to P68.126 billion, below the P70-billion offer and the P90.886 billion in tenders seen for the same volume auctioned off last week. The central bank awarded all the submitted bids.
Accepted rates were from 4.77% to 4.87%, also slimmer than the 4.75% to 4.875% margin from the prior auction. With this, the average rate for the two-week papers declined by 1.34 bps to 4.8216% from 4.835% previously.
The BSP has not auctioned off 28-day term deposits for more than 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.
“The BSP TDF average auction yields again slightly lower as seen in recent weeks, largely due to the continuing effects of the surprise 25-bp BSP rate cut on Oct. 9,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message, adding that dovish signals from policymakers also caused rates to decline.
The Monetary Board this month cut benchmark borrowing costs by 25 bps for a fourth straight meeting, bringing the policy rate to 4.75%.
It was now trimmed rates by 175 bps since its easing cycle began in August 2024.
BSP Governor Eli M. Remolona, Jr. has said that more cuts are possible until next year as they want to support the economy amid weakening growth prospects as a graft scandal involving state flood control and infrastructure projects has dented investor confidence.
On Monday, Monetary Board member Benjamin E. Diokno said in a Bloomberg Television interview that a 25-bp cut is likely at their Dec. 11 meeting, with further reductions possible as the economic fallout from the corruption mess may last until end-2026.
Expectations of a second straight cut from the Fed overnight also pulled TDF yields lower, Mr. Ricafort added.
“Dovish signals from most Fed officials recently would help support possible future Fed rate cuts that could be matched by the BSP to maintain healthy interest rate differentials,” 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.”
The Federal Reserve was expected to cut interest rates by a quarter of a percentage point on Wednesday as policymakers steer the US economy based on limited data that has nevertheless kept concerns about the strength of the job market top of mind, Reuters reported.
Economists polled by Reuters were nearly unanimous in expecting the US central bank to reduce its benchmark policy rate to the 3.75%-4% range when its latest two-day meeting concludes.
But it’s a decision at least partly based on inertia, not the firm grounding in data Fed officials like to say they use in setting monetary policy.
A federal government shutdown means the US central bank did not receive the official employment report covering the month of September, a key input to its policy discussion when officials are focused on the strength of hiring and the evolution of the labor force under President Donald J. Trump’s tightened immigration policies.
Through August, the last month for which the Bureau of Labor Statistics published a jobs report before the shutdown began on Oct. 1, the unemployment rate had been rising slowly, up from 4% in January, when Mr. Trump began his second term in the White House, to 4.3%.
But the pace of hiring had fallen dramatically, with a decline in the number of foreign-born people looking for work helping temper what might have otherwise been a much larger increase in the jobless rate.
While Fed officials feel the job market remained roughly balanced between the demand for and supply of workers, they were also concerned that businesses might begin to cut hiring even further or resort to layoffs given concerns about underlying economic growth — a risk highlighted by both recent layoff announcements at Amazon.com and an uptick in state unemployment claims. State employment agencies are still collecting and publishing weekly data on applications for unemployment benefits, providing one barometer for the health of the labor market.
A final report on inflation in September, released last week on orders from the White House because it figured into the calculation of Social Security benefit increases, showed the consumer price index rose at a slower-than-expected pace last month as tepid housing inflation offset increases in the costs of gas and imported goods now subject to tariffs.
The combination of relatively positive inflation news and ongoing job market concerns means “there hasn’t been much basis for changing views” since policymakers in September indicated that quarter-percentage-point rate cuts were likely at the Oct. 28-29 and Dec. 9-10 meetings, wrote Steven Englander, head of North America macro strategy at Standard Chartered.
In the event that there is a deal to reopen the government soon, the Fed would have about six weeks for any catch-up data to arrive before its final meeting of the year. — Katherine K. Chan with Reuters
