Term deposit rates slip further

MANILA, Philippines -  Term deposit rates slipped further ahead in anticipation of another rate hike by the US Federal Reserve during the meeting of the Federal Open Market Committee (FOMC) later this week.

The yield of the seven-day term deposits eased further to 2.9823 percent during yesterday’s auction from last week’s 2.9873 percent as accepted yield ranged from 2.9 and 3.01 percent.

The longer dated 28-day term deposits fetched a lower yield of 3.3249 percent from 3.3445 percent as accepted rates ranged between 3.2 and 3.35 percent.

The term deposit facility (TDF) was oversubscribed as bids for the P180 billion offering amounted to P218.02 billion amid the strong liquidity in the market.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the market continues to position itself against the backdrop of more than one or two rate hikes by the US Fed.

The BSP decided to maintain the volume of the facility at P180 billion comprising of P150 billion worth of 28-day term deposits and P30 billion worth of seven-day term deposits until March 29.

“The decline in interest rates for both tenors continues to indicate ample liquidity competing for limited volume of offering. We don’t foresee at this point the need for adjusting the volume of offering. As it stands, mopping up by BSP through the TDF remains appropriate and very forward-looking because of the impending US Fed action,” Guinigundo said.

Bids for the seven-day term deposits yesterday amounted to P41.12 billion for the P30-billion issuance translating to a higher bid cover ratio of 1.3708 percent while tenders for the 28-day term deposits amounted to P176.89 billion for the P150 billion offering for a lower ratio of 1.1793 percent.

“There is preference for short-dated instruments like seven days versus 28 days. Hence bid to cover ratio is increasing for the seven days,” Guinigundo said.

BSP Governor Amando Tetangco Jr. believes volatility in the global financial market would continue to linger even if the US decides to raise interest rates at the meeting of the FOMC on March 14 and 15.

“The next question would be when is the next move and by how much? I think during the process of normalization in Fed policy, we will continue to see some volatility in financial markets, particularly the foreign exchange market and the stock market as well,” he said earlier.

The BSP chief said the US Fed hinted of three possible rate hikes instead of two this year after raising policy rates by 25 basis points last December.

“Demand for TDF remains good and there is no real need to adjust auction settings at the moment. Interest rate movements have been small. Changes in the bid to cover ratio can be expected from week to week as players adjust to client and other demands,” Tetangco said.

The BSP launched the TDF as part of the shift to the interest rate corridor (IRC) system last June 3 as one of the facilities to mop up excess liquidity in the financial system. The IRC aims to bring market rates closer to the policy rates.