TERM DEPOSIT yields fell on Wednesday ahead of the US Federal Reserve’s policy decision this week and following the release of latest Philippine inflation data.
The Bangko Sentral ng Pilipinas’ (BSP) term deposit facility (TDF) attracted bids worth P291.099 billion on Wednesday, above the P230 billion on the auction block and the P250.427 billion in bids a week ago for a P210-billion offer.
Tenders for the seven-day papers reached P155.328 billion, higher than the P130 billion auctioned off by the central bank. It was also above the P133.311 billion in bids for the P120-billion worth of deposits offered last week.
Banks asked for yields ranging from 5.955% to 6.1%, narrower than the 5.95% to 6.13% margin a week earlier. This caused the average rate of the one-week deposits to slip by 0.68 basis point (bp) to 6.0824% from 6.0892%.
Meanwhile, bids for the 14-day term deposits stood at P135.771 billion, above the P100-billion offer as well as the P117.116 billion in tenders for the P90 billion auctioned off a week ago.
Accepted rates were from 6% to 6.13%, also narrower than the 6% to 6.1685% range a week ago. As a result, the average rate for the two-week deposits fell by 1.14 bp to 6.1167% from 6.1281% last week.
The BSP has not auctioned off 28-day term deposits for more than four years to give way to its weekly offerings of securities with the same tenor.
The central bank uses the term deposits and BSP bills to help mop up excess liquidity in the financial system and to better guide market rates.
“The TDF average auction yields were again slightly lower for the seventh straight week, ahead of the widely expected Fed rate cut on the next Fed rate-setting meeting on Nov. 7,” Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.
The Federal Reserve on Thursday is expected to cut interest rates again, this time by a quarter of a percentage point to the 4.50%-4.75% range, Reuters reported.
The US central bank launched its policy easing cycle with an unusually large half-percentage-point rate cut in September, the first reduction in borrowing costs since 2020. The Fed hiked rates by 525 bps in 2022 and 2023.
Traders on Tuesday trimmed bets on Fed interest rate cuts next year as early tallies for the US presidential election rolled in through the evening.
Traders of futures contracts tied to the Fed’s policy rate now see the Fed likely stopping its rate cuts after just two more such cuts in the first half of 2025, bringing the rate to the 3.75%-4% range.
Mr. Ricafort added that TDF yields went down as Philippine inflation remained within the central bank’s target in October despite picking up from the month prior.
Headline inflation picked up to 2.3% in October from 1.9% in September, the Philippine Statistics Authority reported on Tuesday.
Still, this was slower than the 4.9% print in the same month last year. This was also within the BSP’s 2%-2.8% forecast for the month and a tad below the 2.4% median estimate in a BusinessWorld poll of 11 analysts.
For the first 10 months, the consumer price index averaged 3.3%, well within the BSP’s 2-4% target for the year but above its 3.1% baseline forecast. — L.M.J.C. Jocson with Reuters