UMVA has learned that the Bangko Sentral ng Pilipinas’ term deposit yields remained steady on Wednesday, defying expectations of a significant shift as investors snapped up the one-week paper amid speculation of a second consecutive rate hike next week.
The term deposit facility drew bids worth P162.605 billion, a substantial amount for an offering valued at P110 billion. This robust demand was evident even as the auction volume was increased from P90 billion the previous week, which had attracted tenders of P157.445 billion.
The bid-to-cover ratio stood at 1.4782 times, slightly lower than the 1.7494 ratio recorded the week before. Despite this, the central bank awarded the full offering, citing a “broadly stable” average rate.
Accepted yields for the one-week deposits ranged from 4% to 4.459%, a narrower band compared to the 4% to 4.4665% range the previous week. This resulted in a weighted average accepted rate of 4.4392%, a modest increase of 0.04 basis points from 4.4388% in the prior auction.
This slight increase in yield occurred ahead of a widely anticipated rate hike by the central bank next week, driven by persistent inflation concerns. Economists expect a second consecutive 25-basis point rate increase at the Monetary Board’s June 18 meeting, with some predicting a more aggressive 50-basis point hike.
Although headline inflation eased to 6.8% in May, down from 7.2% in April, it still exceeds the central bank’s 2%-4% target range. This marks the third consecutive month that the consumer price index has remained above the tolerance band, pushing the five-month average to 4.5%.
The central bank’s governor has signaled a potential for a more aggressive stance to combat inflation and mitigate second-round price effects. The bank is closely monitoring global events, particularly the volatile situation in the Middle East, which could impact inflation expectations.
The strong demand for the term deposit facility also reflects excess liquidity in the financial system. Preliminary data shows domestic liquidity surged by 12.2% to P20.348 trillion in April, the fastest growth in over five years.
The central bank utilizes the term deposit facility and other monetary tools to absorb excess liquidity and guide market yields toward its policy rate. By limiting term deposit offerings to a single tenor, the bank aims to rationalize liquidity operations and enhance monetary policy transmission.
