Term deposit rates mixed, 7-day tenor falls below 5%

MANILA, Philippines — Term deposit rates were mixed yesterday as the yield of the seven-day tenor fell below five percent for the first time in four months as the Bangko Sentral ng Pilipinas (BSP) is widely expected to keep interest rates unchanged today after a tightening cycle last year.

The yield of the seven-day term deposits eased by 4.11 basis points to 4.9803 percent from last week’s 5.0214 percent. The last time the instrument fetched a yield below five percent at 4.9420 percent was on Nov. 28, 2018.

Likewise, the 28-day tenor fetched a lower rate of 5.0987 percent from 5.1758 last March 6. The BSP auction committee did not auction 28-day term deposits last week due to the scheduled settlement of the retail treasury bonds (RTBs) issued by the Bureau of the Treasury (BTr).

The government successfully raised P237 billion from the issuance of the five-year RTBs that fetched a coupon rate of 6.25 percent as part of the domestic borrowing program to raise funds to plug the country’s budget deficit.

On the other hand, the yield of the 14-day term deposits inched up by 1.04 basis points to 5.1079 percent from 5.0975 percent last week.

The liquidity absorption facility was oversubscribed as bids tendered by banks reached P65.53 billion versus the issue size of P50 billion.

Tenders for the seven-day tenor reached P27.25 billion, while bids for the 14-day term deposits amounted to P22.2 billion. The auction committee made a full award of P20 billion for the seven-day tenor and P20 billion for the 14-day term deposits.

Likewise, bids for the 28-day debt instrument reached P16.08 billion, exceeding the issue size of P10 billion.

Last week, BSP Deputy Governor Diwa Guinigundo said there is ample liquidity in the financial system, allowing banks to park their excess funds in the facilities of the central bank including the TDF.

“Still shows system is liquid, banks have enough surplus funds to place with BSP,” Guinigundo said in a text message.

Economists expects the central bank to keep interest rates unchanged today amid easing inflation.

The central bank has taken a breather from its tightening cycle and kept interest rates steady in December and February. Inflation eased to 3.8 percent in February from 4.4 percent in January due to easing oil and food prices.

Inflation accelerated to 5.2 percent last year from 2.9 percent in 2017, exceeding the BSP’s two to four percent target, due to elevated oil and food prices as well as weak peso.

Newly installed BSP Governor Benjamin Diokno hinted a possible reduction of the level of deposits banks are required to keep with the central bank by 400 basis points over the next four quarters amid the steady downtrend in inflation.

 The country’s reserve requirement ratio (RRR) is the highest in the region despite the 200 basis point reduction to 18 percent from 20 percent last year.