Term deposit rates ease further

MANILA, Philippines — The yields of term deposit rates further dropped across the board as banks continued to swarm the liquidity absorption facility of the Bangko Sentral ng Pilipinas (BSP) after a series of interest rate cuts.

The seven-day tenor fetched 4.2348 percent, or 1.53 basis points lower than last week’s 4.2501 percent, while the yield of the 14-day term deposits slipped 0.62 basis point to 4.2485 percent from 4.2547 percent.

Likewise, the 28-day term deposit rates averaged 4.2754 percent, or 2.85 basis points lower than last week’s 4.3039 percent.

BSP Deputy Governor Francisco Dakila Jr. said the yields of term deposits continued to decline following the decision of the central bank to deliver its third rate cut for this year amid easing inflation.

The BSP has so far reduced benchmark rates by 75 basis points with a reduction of 25 basis points each last May 9, Aug. 8, and Sept. 26.

Inflation averaged 2.8 percent in the first nine months after matching a 40-month low of 0.9 percent in September from 1.7 percent in August.

Easing inflation allowed the BSP to partially unwind its tightening cycle that saw rates rise by 175 basis points between May and November last year to keep inflation expectations well anchored after accelerating to 5.2 percent from 2.9 percent in 2017 and exceeded the central bank’s two to four percent target due to elevated oil and food prices as well as weak peso.

The term deposit auction facility was oversubscribed across all tenors with tenders breaching the P100-billion level to hit P114.78 billion, exceeding the auction volume of P80 billion.

Bids for the seven-day term deposits reached P38.63 billion versus the issue size of P30 billion, while bids for the 14-day tenor amounted to P43.38 billion compared to the P30-billion volume.

Likewise, bids for the 28-day term deposits reached P32.77 billion, higher than the issue size of P20 billion.

Dakila said banks continued to park their excess funds in the TDF.

“There is an increase n the available short term liquidity in the financial system owing to the release of funds from the deposits of the national government with the BSP,” Dakila said.

Liquidity in the financial system is expected to rise further after the BSP also decided to lower the reserve requirement ratio for big, mid-sized, and small banks by another 100 basis points effective November.