YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits dropped on Wednesday ahead of the release of May inflation data, which could have eased further from the April level to strengthen the case for another rate cut as early as this month.
The central bank’s term deposit facility (TDF) fetched bids amounting to P169.771 billion on Wednesday, higher than the P140 billion placed on the auction block and the P154.854 billion for the P110-billion offer a week ago. This allowed the BSP to make a full award of both tenors.
Broken down, tenders for the seven-day papers reached P90.668 billion, above the P70 billion auctioned off by the central bank and the P78.28 billion in bids for the P60 billion on offer the previous week. The BSP fully awarded the one-week deposits.
Accepted yields were from 5.05% to 5.5185%, wider than the 5.49% to 5.5255% band seen a week ago. This caused the average rate of the one-week deposits to slip by 0.75 basis point (bp) to 5.5083% from 5.5158% previously.
Meanwhile, bids for the 14-day term deposits amounted to P79.103 billion, also higher than the P70-billion offering and the P76.574 billion in tenders for the P50 billion auctioned off the week prior. The central bank likewise made a full P70-billion award of the two-week tenor.
Banks asked for yields ranging from 5.4% to 5.545%, a tad wider than the 5.5% to 5.545% margin seen a week ago. With this, the average rate for the two-week deposits fell by 1.26 bps to 5.5173% from 5.5299% logged in the prior auction.
The BSP has not auctioned off 28-day term deposits for more than four 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 closer to the policy rate.
The central bank said it made a full award of the TDF offer as the auction was met with “good demand,” with both tenors going oversubscribed.
Term deposit yields went down on expectations of slower May inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
A BusinessWorld poll of 17 analysts conducted last week yielded a median estimate of 1.3% for the May consumer price index (CPI), slower than the 1.4% in April and 3.9% in the same month a year ago. This is also within the central bank’s 0.9%-1.7% forecast for the month.
If realized, this would be the lowest clip in more than five years or since the 1.2% in November 2019.
The Philippine Statistics Authority is scheduled to release May inflation data on Thursday (June 5).
The slower inflation print would justify another BSP rate cut this month, Mr. Ricafort said.
BSP Governor Eli M. Remolona, Jr. earlier said cooling inflation has given them “plenty of room” to continue their easing cycle.
He said they could deliver two more rate cuts this year in “baby steps” of 25 bps.
A rate cut is also on the table at the Monetary Board’s next rate-setting meeting on June 19, he added.
The central bank slashed benchmark borrowing costs by 25 bps in April, bringing the policy rate to 5.5%.
It has now cut interest rates by 100 bps since it kicked off its easing cycle in August last year. — Luisa Maria Jacinta C. Jocson
