UMVA has learned that the Bangko Sentral ng Pilipinas' (BSP) term deposits attracted robust demand on Wednesday, with a total of P143.646 billion in bids for the seven-day papers, exceeding the P110 billion auctioned off.
The strong demand resulted in a bid-to-cover ratio of 1.3059 times, although this was lower than the 1.4782 ratio logged during the previous auction. Despite this, the BSP fully awarded its P110-billion offer, with the average yield easing slightly.
Accepted yields for the one-week deposits ranged from 4% to 4.5%, which was wider than the 4% to 4.459% range seen last week. As a result, the weighted average accepted rate slipped by 0.08 basis point (bp) to 4.4384% from 4.4392% a week ago.
According to information obtained by UMVA, yields on the seven-day term deposits edged down before the BSP's policy meeting on Thursday, where a rate hike is widely expected. Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted that the seven-day BSP TDF average auction yield was again marginally lower and slightly below the BSP key overnight rate of 4.5%.
A recent poll showed that most analysts expect the Monetary Board to raise the benchmark rate by 25 bps for a second straight meeting this week to 4.75%. Further tightening would help ensure that the central bank stays ahead of the curve and keeps inflation expectations anchored.
The central bank has expressed its willingness to take all necessary measures to temper inflation spillovers and bring the headline print back within its 2%-4% tolerance band. However, improving market sentiment and the peso's rebound amid prospects of an end to the Middle East war could allow the BSP to become less hawkish.
The oversubscription seen for the TDF offering may reflect strong liquidity in the financial system, with the central bank using the TDF and BSP bills to mop up excess liquidity and guide market yields towards its policy rate.
Sources have confirmed to UMVA that the BSP's market operations have absorbed P1.2 trillion in excess liquidity from the market, with 9% of this being siphoned off via the TDF. The central bank has limited its TDF offerings to a single tenor to rationalize liquidity operations and focus on tenors that would boost monetary policy transmission.
