Term deposits fetch record yields

MANILA, Philippines — Yields of term deposits rose across the board to hit a record high level anew ahead of the last rate-setting meeting of the Bangko Sentral ng Pilipinas (BSP) for the year wherein authorities are expected to take a “hawkish pause.”

The seven-day tenor climbed by 9.67 basis points to a record high of 5.1135 percent at the term deposit auction facility (TDF) yesterday from last week’s 5.0168 percent.

The yield of the 14-day term deposits inched up 3.78 basis points to a new all-time high of 5.1649 percent from 5.1271, while the 28-day tenor fetched a record yield of 5.1952 percent or 5.19 basis points higher than last week’s 5.1433 percent.

The higher yields could be attributed to strong demand as banks positioned ahead of the eighth and last rate-setting meeting of the central bank’s Monetary Board for 2018.

The P70-billion auction was oversubscribed with tenders reaching P85.06 billion.

The seven-day tenor was oversubscribed with tenders reaching P52.17 billion versus the P40 billion volume, while bids for the 14-day term deposits amounted to P21.18 billion or P1.18 billion higher than the issue size of P20 billion.

Likewise, bids for the 28-day tenor amounted to P11.71 billion compared to the auction size of P10 billion.

The TDF was launched in June 2016 as part of the shift to the interest rate corridor (IRC) framework to guide short-term market rates towards he BSP policy interest rate. It also serves as a liquidity absorption facility of the central bank.

ING Bank Manila senior economist Nicholas Mapa said the BSP may keep interest rates unchanged today after jacking up benchmark rates by 175 basis points in five-rate setting meetings since May this year to rein in inflation.

“After hiking rates by a cumulative 175 basis points over the course of its last five meetings, the BSP will likely adopt a hawkish pause. We expect it to keep rates unchanged while simultaneously retaining its hawkish bias by pledging to act against signs of price pressure if these become apparent,” Mapa said.

Mapa said a pause would give the general economy some breathing room and keep the market on its toes by displaying the BSP’s readiness to act to safeguard the inflation target.