Term deposit rates ease across the board

MANILA, Philippines — The yield of term deposits eased across the board at Wednesday’s auction as banks await the release of additional funds into the financial system from the reduction of the reserve requirement ratio (RRR) effective May 31.

The eight-day tenor fetched 4.6187 percent yesterday or 1.88 basis points lower than last week’s 4.6375 percent, while the yield of the 14-day tenor eased to 4.5910 percent from 4.5999 percent.

Likewise, the 28-day term deposits fetched 4.5974 percent or 4.06 basis points lower than last week’s 4.6380 percent.

The term deposit auction facility (TDF) was heavily undersubscribed yesterday as tenders for the three tenors reached only P29.15 billion versus the issue size of P40 billion.

Bids for the eight-day tenor only amounted to P14.98 billion against the P20-billion volume.

Likewise, tenders for the 14-day term deposits reached P6.11 billion or below the P10-billion issue size, while the 28-day tenor was also undersubscribed as bids only amounted to P8.06 billion or lower than the issue size of P10 billion.

“The banks could have deployed them to various purposes other than placing them with the BSP again in anticipation of more funds to be released via reduction in RRR,” BSP Deputy Governor Diwa Guinigundo said in a text message.

The decision of the BSP to slash the level of deposits banks are required to keep with the central bank is expected to inject P210 billion in additional funds into the financial system over the next three months.

The central bank reduced the RRR for big banks by 200 basis points to 16 percent from the current 18 percent in three tranches starting May 31 until July 26. The move is expected to release P190 billion in additional money into the financial system.

Likewise, around P9.3 billion in additional funds will be released into the economy with the reduction of the RRR for mid-sized or thrift banks by 200 basis points to six percent from the current eight percent also in three tranches starting May 31.

The regulator also slashed the RRR for small or rural and cooperative banks to four percent from five percent effective May 31 which is also expected to release P1.8 billion into the financial system.

BSP Governor Benjamin Diokno has committed to pursue the plan of the late central bank governor Nestor Espenilla Jr. to lower the RRR level for big banks to single digit level by 2023.

Last year, about P190 billion was released into the financial system after the BSP initially slashed the RRR by 200 basis points to 18 percent from 20 percent.

Likewise, the BSP has reversed its tightening episode by slashing interest rates by 25 basis points last May 9 on the back of easing inflation as well as lower-than-expected gross domestic product (GDP) growth.

Inflation slowed down for six straight months to hit a 16-month low of three percent in April after peaking at 6.7 percent in September and October last year.

This brought the average inflation to 3.6 percent in the first four months, well within the BSP’s two to four percent target range.