Term deposits fetch record low yields

MANILA, Philippines  — Term deposits fetched record low yields amid strong demand from investors following the surprise 50-basis point interest rate cut last week, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Deputy Governor Francisco Dakila Jr. said rates at the term deposit facility (TDF) auction fell across all tenors yesterday after the central bank’s Monetary Board slashed interest rates by another 50 basis points last June 26.

“Strong market appetite as well as the 50-basis point policy rate cut by the BSP effective June 26 led to further declines in TDF rates,” Dakila said.

The central bank has slashed interest rates by a total of 175 basis points this year, bringing the overnight reverse repurchase rate to an all-time low of 2.25 percent, including the 50 basis points cut last Thursday, due largely to the potential impact of a deeper and more disruptive coronavirus disease 2019 or COVID-19 pandemic.

Dakila said average interest rates continued to decline, with the yield of the seven-day term deposits plunging by 49.32 basis points to 1.7573 percent from last week’s 2.2504 percent and that of the 14-day tenor dropping by 49.86 basis points to 1.7522 percent from 2.2508 percent.

He added that the yield of the re-opened 28-day term deposits plummeted by 1.99 percent to 1.7562 percent from 3.7436 percent last March 11.

It would be recalled the BSP suspended the weekly TDF starting March 18 to address the liquidity needs of banks after Malacañang imposed a Luzon-wide enhanced community quarantine to prevent the further spread of the virus.

It resumed the auction for the seven-day tenor last April 15 and for the 14-day term deposits last June 10.

Furthermore, cash-rich banks continued to swarm the liquidity absorption facility of the BSP as it parked their excess funds due to lack of interest from corporate and individuals for new loans due to the health crisis.

Tenders amounted to P441.63 billion, more than double the increased volume of P210 billion.

Bids for the seven-day tenor reached P232.3 billion or almost double the P120 billion offering, while tenders for the 14-day term deposits amounted to P149.68 billion or more than double the hiked volume of P70 billion.

Bids for the re-opened 28-day term deposits amounted to P59.65 billion or almost triple the P20-billion offering.

“Auction results also reflect market preference for longer-tenor TDF amid ample liquidity in the financial system,” Dakila said.

The Monetary Board has been doing all the heavy lifting to cushion the impact of the coronavirus disease 2019 or COVID-19 pandemic.

Its COVID-19 measures including the series of interest rate cuts and reduction of the reserve requirement ratio by 200 basis points, the P300-billion repurchase agreement with the Bureau of the Treasury, among others have unleashed P1.6 trillion into the financial system.

“The BSP will continue to assess current market developments and liquidity conditions in deciding on the volume of its TDF operations,” Dakila added.