TERM DEPOSIT yields inched down on Wednesday on strong demand following the cut in banks’ reserve requirement ratios (RRR) and as markets remain cautious ahead of the US presidential election next week.
The Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) fetched bids amounting to P250.427 billion on Wednesday, above the P210-billion offering but below the P286.874 billion in tenders for the P170 billion placed on the auction block last week.
Broken down, tenders for the seven-day papers reached P133.311 billion, higher than the P120 billion auctioned off by the central bank but below the P169.976 billion in bids for the P90-billion offer of five-day deposits the previous week.
Banks asked for yields ranging from 5.95% to 6.13%, slightly wider than the 5.99% to 6.14% band seen a week earlier. This caused the average rate of the one-week deposits to slip by 0.44 basis point (bp) to 6.0892% from 6.0936% previously.
Meanwhile, bids for the 14-day term deposits amounted to P117.116 billion, above the P90-billion offering and the P116.898 billion in tenders for the P80 billion in 12-day papers auctioned off a week earlier.
Accepted rates for the tenor were from 6% to 6.1685%, narrower than the 5.998% to 6.2% margin seen a week ago. With this, the average rate for the two-week deposits dropped by 0.93 bp to 6.1281% from 6.1374% logged in the prior auction.
The central bank has not auctioned 28-day term deposits for more than four years to give way to its weekly offerings of securities with the same tenor.
The term deposits and the BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates.
TDF yields ended lower after the latest cut in banks’ RRRs took effect last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The BSP has reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5% effective on Oct. 25.
It also slashed the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders was reduced by 100 bps to 1%. Rural and cooperative banks’ RRR was brought down by 100 bps to 0%.
“That effectively released about P400 billion in peso liquidity into the banking system that may be deployed for additional loans and credit, as well as additional investments in bonds, other fixed-income instruments, stocks, and other investments,” Mr. Ricafort said.
He added that term deposit rates moved sideways as markets price in the possibility of Republican candidate Donald J. Trump winning the US presidential race, leading to a stronger dollar and higher US yields.
“Any Trump victory could lead to higher US inflation amid possible trade war that could lead to higher tariff rates on imports from China and other countries, tighter immigration rules that could increase US labor costs, deficit spending on possible tax cuts, and economic stimulus, among others,” Mr. Ricafort said.
Asia’s financial markets stand on the front line of what could be a wild ride when votes are tallied and in the months ahead since the region is an export powerhouse and shares and currencies are sensitive to changes in US trade policies, Reuters reported.
That has money managers shying away from outright wagers on the outcome and looking instead to reduce exposure to vulnerabilities from Japanese manufacturers to Hong Kong stocks and make bets in India or China that stand to gain regardless of the US leader.
In the final stretch to the Nov. 5 election, betting odds have Republican Mr. Trump leading Democrat Kamala Harris and financial markets have moved to sell US bonds and buy dollars in anticipation a Trump administration would increase inflation.
Meanwhile, Ms. Harris’ lead over Mr. Trump dwindled in the final stretch of the US presidential contest, with the Democrat ahead by a single percentage point over the Republican, 44% to 43%, according to a Reuters/Ipsos poll published on Tuesday.
The three-day poll, completed on Sunday, showed the race effectively tied ahead of the Nov. 5 election. The poll had a margin of error of about three percentage points in either direction.
While Ms. Harris has led Mr. Trump in every Reuters/Ipsos poll of registered voters since she entered the race in July, her lead has steadily shrunk since late September. A prior Reuters/Ipsos poll conducted Oct. 16-21 showed Ms. Harris, the current US vice president, with a two-point lead over former President Trump. — Luisa Maria Jacinta C. Jocson with Reuters