The Philippines’ central bank witnessed a continued decline in yields for its short-term deposits this week, a direct consequence of further reductions in benchmark interest rates. This shift reflects growing concerns surrounding the nation’s economic momentum.
Demand for the central bank’s term deposit facility reached P117.878 billion, surpassing the P90 billion available, yet falling short of the previous week’s P124.877 billion. This resulted in a decreased bid-to-cover ratio, signaling a subtle cooling in investor appetite.
Despite the slightly lower demand, the central bank fully awarded the P90 billion offering. Accepted rates settled between 4% and 4.3%, a narrower and lower range than the previous week’s 4.45% to 4.495%. The weighted average yield for the seven-day deposits dropped to 4.2404%, a decrease of 23.9 basis points.
The central bank directly linked the falling rates to its recent policy rate cut on February 19th. This move, the sixth consecutive reduction, brought the policy rate to a more than three-year low of 4.25%, representing a total reduction of 225 basis points since August 2024.
However, the path forward is now less certain, according to the central bank’s Governor. Further rate cuts may not be sufficient to stimulate economic growth, even with remaining policy flexibility, as inflation remains under control. Early indications suggest a tentative recovery in confidence, potentially bolstering domestic demand.
The slowdown in economic growth, reaching a post-pandemic low of 4.4% in 2025, is partly attributed to a corruption scandal impacting government spending, consumer behavior, and overall investor sentiment. This has created a need for proactive monetary policy adjustments.
Adding to the downward pressure on yields is the recent strengthening of the Philippine peso against the dollar. A stronger peso lowers import costs, easing price pressures and supporting the possibility of further monetary easing measures.
The peso experienced a significant jump, reaching a five-month high of P57.51 against the dollar. This surge was fueled by uncertainty surrounding potential trade policy changes from the Trump administration, weakening the dollar’s position.
The Trump administration is considering increasing a temporary global tariff to 15% from the previously announced 10%, a move intended to replace tariffs previously struck down by the US Supreme Court. This policy shift is contributing to global economic uncertainty.
The central bank utilizes the term deposit facility and similar instruments to manage liquidity within the financial system and align market rates with its policy objectives. These tools are crucial for maintaining economic stability.
The central bank has strategically limited its issuance of short-term papers to improve the effectiveness of monetary policy transmission and encourage banks to proactively manage their liquidity positions. This approach aims to optimize the impact of policy decisions.
As of mid-November 2025, the central bank’s market operations had absorbed P1.5 trillion in liquidity, with the term deposit facility accounting for 5.4% of this total. This demonstrates the facility’s role in managing the flow of funds within the economy.
