YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits dropped further on Wednesday on strong market demand amid expectations of further policy rate cuts.
Bids for the central bank’s term deposit facility (TDF) totaled P165.488 billion, more than the P130 billion on the auction block but below the P188.91 billion in tenders seen last week for the same offer volume. However, the BSP only awarded P129.227 billion in papers, partially awarding the one-week deposits to keep rates low.
Broken down, tenders for the seven-day papers stood at P74.602 billion, exceeding the P60 billion placed on the auction block but lower than the P87.195 billion in bids the prior week for the same offer volume. The central bank awarded only P59.227 billion worth of the tenor.
Accepted yields ranged from 4.76% to 4.88%, narrower than the 4.75% to 4.92% margin a week ago. With this, the average rate for the one-week deposits went down by 2.39 basis points (bps) to 4.8248% from 4.8487% last week.
Meanwhile, the 14-day deposits attracted P90.886 billion in bids, higher than the P70-billion offer but below the P101.715 billion in tenders fetched last week for the same offer volume. The BSP made a full P70-billion award of the two-week papers.
Banks asked for yields from 4.75% to 4.875%, lower and narrower than the 4.767% to 4.95% band logged in the previous auction. This caused the average rate of the 14-day papers to drop by 3.9 bps to 4.835% from 4.874% the prior week.
The BSP has not auctioned off 28-day term deposits for more than five years to give way to its weekly offerings of securities with the same tenor.
Both the TDF and BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates towards the policy rate.
“The BSP TDF auction yields were again slightly lower week on week on continuing effects of the surprise 25-bp BSP rate cut on Oct. 9,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
He said dovish signals from BSP Governor Eli M. Remolona, Jr. also helped drive term deposit yields down as investors are seeking to lock in still-high returns before rates go down further.
The Monetary Board this month trimmed benchmark interest rates by 25 bps for a fourth consecutive meeting, bringing the policy rate to an over three-year low of 4.75%.
It has now slashed borrowing costs by a cumulative 175 bps since it began its rate cut cycle in August 2024. Mr. Remolona has signaled further easing, possibly until next year, as they want to help support the economy due to a softer growth outlook as governance issues related to state infrastructure projects have weighed on investor confidence.
Mr. Ricafort added that expectations of further easing by the US Federal Reserve also contributed to the decline in TDF rates.
The Fed last month reduced its target rate by 25 bps to bring it to the 4%-4.25% range. Fed Chair Jerome H. Powell has hinted at more cuts as they seek to balance the US job market’s weakness with above-target inflation.
The Fed will lower its key interest rate by 25 bps next week and again in December, according to a Reuters poll of economists who remain deeply divided on where rates will be by the end of next year, Reuters reported.
Fed funds futures imply a 98.9% probability of a 25-bp cut to interest rates at the central bank’s meeting on Oct. 29, according to the CME Group’s FedWatch tool. — Katherine K. Chan with Reuters