Term deposit rates mixed

MANILA, Philippines — Interest rates on term deposits were mixed in yesterday’s auction, with the longer 14 and 28-day tenors commanding higher yields, the Bangko Sentral ng Pilipinas (BSP) reported.

BSP Deputy Governor Diwa Guinigundo said term deposits continued to fetch higher rates amid rising inflationary pressures as well as the possibility of more rate increases by the US Federal Reserve.

“Banks are leveraging on what they think are tightening market conditions that would include prospects of higher inflation in the country and several rate hikes expected in the US Fed,” Guinigundo said.

The seven-day term deposits fetched a lower rate of 3.4397 percent yesterday from 3.3967 percent last week.

On the other hand, the yield of the 14-day tenor rose to 3.4648 percent from 3.4370 percent, while the 28-day term deposits also commanded a higher rate of 3.4574 percent from 3.4097 percent.

Inflation is expected to remain high and could peak in the third quarter with the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law last Jan. 1 before easing starting the fourth quarter.

Inflation rose to 4.3 percent in March from the revised 3.8 percent in February based on 2012 prices, exceeding the central bank’s full-year target of two to four percent.

Based on its assessment last March 22, the BSP sees inflation rising to 3.9 percent this year before easing to three percent next year.

Economists and analysts see the central bank finally raising interest rates on May 10 after keeping an accommodative policy stance over the last three years to support the growing economy under a low interest rate regime. The BSP last raised interest rates by 25 basis points in September 2014.

Guinigundo said term deposits continued to command higher rates amid the higher demand for cash to finance the government’s massive infrastructure build up under the Build Build Build program.

The P90 billion term deposit auction facility (TDF) was slightly oversubscribed yesterday as bids amounted to P96.26 billion. The auction committee temporarily trimmed the TDF volume to P90 billion from P110 billion due to the holidays on Labor Day on May 1 as well as the Barangay and Sangguiniang Kabataan elections on May 14.