The Bangko Sentral ng Pilipinas’ (BSP) term deposits' average yield has increased for a third consecutive week, as the market anticipates further monetary policy tightening despite a slower-than-expected June inflation reading.
Bids for the central bank's term deposit facility (TDF) totaled P143.054 billion on Wednesday, exceeding the P120 billion in seven-day deposits placed on the auction block. This was slightly lower than the P146.927 billion in tenders for a P110-billion offer last week.
The bid-to-cover ratio dropped to 1.1921 times from the 1.3357 ratio in the previous auction, indicating a decrease in demand for the TDF. The central bank fully awarded its offering following the oversubscription.
The accepted rates for the one-week papers widened slightly to the 4.25% to 4.75% range from the 4.25% to 4.7449% band seen a week ago. As a result, the weighted average accepted yield rose by 2.63 basis points (bps) week on week to 4.7079% from 4.6816%.
Experts believe that the BSP's hawkish tone, despite the easing of headline inflation, contributed to the increase in TDF yields. Headline inflation slowed to a three-month low of 6.4% in June, but still remained above the central bank's 2%-4% target.
The BSP's data showed that inflationary pressures remain strong, leaving the door open to further monetary policy tightening. The Monetary Board has already hiked rates by a cumulative 50 bps since April, and BSP Governor Eli M. Remolona, Jr. stated that the economy can absorb another 25-bp increase as growth is expected to rebound this semester.
The central bank uses the TDF and BSP bills to mop up excess liquidity in the financial system and better guide market yields towards its policy rate. As of mid-February, the BSP's market operations have absorbed P1.2 trillion in excess liquidity from the market, with 9% of this being siphoned off via the term deposit facility.
