Yield of 7-day term deposits eases further

MANILA, Philippines — The yield of seven-day tenor eased anew with banks swarming the term deposit auction facility (TDF) yesterday as the Bangko Sentral ng Pilipinas (BSP) ramps up efforts to help soften the blow of the coronavirus pandemic.

The seven-day tenor fetched 2.3133 percent yesterday, 12.36 basis points lower than last week’s 2.4369 percent.

BSP Deputy Governor Francisco Dakila Jr. said the decline in the seven-day term deposit rates is consistent with the 50 basis points cut in policy rate during the first ever off-cycle meeting of the Monetary Board on April 16.

Dakila said the results of the TDF auction reflect the impact of the recent measures by the BSP to boost market liquidity as well as indicative of a broader increase in market appetite for BSP instruments and government securities.

Tenders reached P137.16 billion or almost three times the higher volume of P50 billion.

Meanwhile, the BSP has yet to resume the auction of 14- and 28-day term deposits to encourage banks to lend excess funds to individuals and companies particularly micro, small, and medium-scale enterprises (MSMEs) affected by the health crisis. It resumed the auction but limited to the seven-day tenor last April 15.

The central bank suspended the weekly auction of term deposits starting March 18 to address the liquidity needs of banks after Malacañang imposed a Luzon-wide enhanced community quarantine to prevent the spread of the coronavirus disease 2019 or COVID-19.

The BSP slashed interest rates by another 50 basis points during its first ever off-cycle meeting last April 16, bringing the overnight reverse repurchase rate to an all-time low of 2.75 percent. The next rate-setting meeting of the BSP is supposed to be scheduled on May 21.

This brought to 125 basis points the total reduction in benchmark rates this year.

In all, the BSP has lowered interest rates by 200 basis points since May last year amid the benign inflation environment and slower than expected gross domestic product (GDP) growth, unwinding the tightening cycle that saw rates jump by 175 basis points due to an inflation breach in 2018.