The Philippine central bank witnessed a surge in demand for its short-term deposits this week, even as the average rate edged slightly lower. This heightened interest arrives at a critical juncture, fueled by recent economic data painting a less vibrant picture of growth.
Bids for the seven-day term deposit facility soared to P121.841 billion, significantly exceeding the amount offered and surpassing the previous week’s tenders. This robust demand, reflected in a strengthened bid-to-cover ratio, signals a strong appetite for these instruments among financial institutions.
Despite the overwhelming interest, the central bank strategically accepted a slightly lower amount than auctioned, aiming to maintain a restrained average yield. Accepted rates ranged narrowly, ultimately resulting in a marginal decrease of 0.06 basis points from the previous week’s average.
Analysts believe this subtle shift is directly linked to recent economic reports revealing a slowdown in the nation’s growth. The latest figures show a 3% expansion in the fourth quarter, the slowest pace in nearly five years – a performance reminiscent of the challenges faced during the Global Financial Crisis.
Full-year growth for 2025 clocked in at 4.4%, falling short of government targets and marking the weakest annual expansion in over a decade. Contributing factors include restrained government spending and a dip in investor confidence.
This economic deceleration has intensified expectations for potential monetary easing. The central bank governor has indicated a willingness to consider a rate cut at the upcoming February policy review, particularly if the slowdown is confirmed to be demand-driven.
Since August, the central bank has already reduced benchmark borrowing costs by a substantial 200 basis points, bringing the policy rate to 4.5%. Experts suggest that manageable inflation and the current economic outlook could pave the way for one or two further cuts this year.
Adding to the easing narrative, forecasts predict January inflation will remain stable, continuing a trend of staying within the central bank’s target range for the eleventh consecutive month. Official inflation data is expected to be released shortly, potentially reinforcing these expectations.
The central bank utilizes these term deposit facilities as a key tool to manage liquidity within the financial system and influence market rates. These operations have already absorbed a significant P1.5 trillion in liquidity, demonstrating their effectiveness in shaping monetary conditions.
As the central bank carefully assesses incoming data, the possibility of further easing remains firmly on the table, poised to respond to the evolving economic landscape and support sustained growth.
