28-day term deposits fetch higher yield

MANILA, Philippines – Banks and trust entities continued to swarm the central bank’s term deposit facility, resulting in the sustained rise in the yield of the longer-dated term deposits. 

The 28-day term deposits fetched 2.5551 percent yesterday, higher than last week’s 2.5438 percent. The accepted yield ranged between 2.5 and 2.5625 percent.

On the other hand, the yield of the seven-day term deposits remained unchanged at 2.5 percent.

Bids for the seven-day term deposits reached P35.28 billion while tenders for the 28-day term deposits amounted to P187.49 billion. The Bangko Sentral ng Pilipinas (BSP) made a full award of P10 billion for the seven-day term deposits and P100 billion for the 28-day term deposits. 

The BSP has decided to raise the volume of the term deposit facility (TDF) to P110 billion starting yesterday from the previous size of P90 billion. The volume of the facility has been increased four times since it was launched last June 8 as part of the shift to the interest rate corridor (IRC) system.

From an original volume of P30 billion, the size was increased to P50 billion in July, to P70 billion last Aug. 3, to P90 billion last Aug. 31, and to P110 billion starting Oct. 5.

BSP Governor Amando Tetangco Jr. said monetary authorities are carefully studying the reduction of the reserve requirement ratio for banks as part of the shift to the IRC system last June. 

“We would need more data points on the TDF auctions before we would make a move in the reserve requirement. While these are important, the TDF results are not the only factor to consider for a change in the reserve requirement,” he said.

The BSP chief explained authorities would have to consider other factors such as inflation.

 “The outlook on inflation, any brewing pressures in other segments of the financial market, are some of the other factors. There is no black box for this,” he said.

The BSP implemented an operational adjustment reducing the overnight lending rate (formerly overnight borrowing rate) to 3.5 percent from six percent as well as the overnight reverse repurchase rate (formerly overnight lending rate) to three percent from four percent last June 3. The yield of the overnight deposit facility (ODF) was retained at 2.5 percent.

 “We will make the necessary announcement when we believe the confluence of conditions warrant a move. The objective however remains – that we want to be more market-oriented in our policy tools... it is just a matter of timing,” Tetangco said.

Eugenia Victorino, economist at Australia and New Zealand Banking Group Ltd., said the BSP has more time to facilitate of excess liquidity parked at the overnight deposit facility (ODF) to the TDF due to the robust domestic demand and benign inflation environment.

Victorino said inflation has a low risk of breaching the upper bank of the BSP’s inflation target of between two and four percent despite the robust growth outlook for the Philippines. 

“This should provide the central bank more time to facilitate the migration of excess liquidity to the TDF. Since the first TDF auction in June, the BSP has been slowly raising the weekly auction volume,” she added.