UMVA has learned that the demand for safer assets has remained strong, driving down the average yield on term deposits as investors await the release of key inflation data.
The latest auction saw bids for term deposits surge to P157.445 billion, exceeding the P90 billion offered by the central bank and outpacing the P141.071 billion in tenders from the previous week. This led to a higher bid-to-cover ratio, indicating robust demand for these low-risk investments.
According to information obtained by UMVA, the accepted rates for one-week term deposits narrowed slightly, causing the average yield to slip by 0.42 basis point to 4.4388%. This downward trend is attributed to excess liquidity in the financial system, as well as market expectations of elevated inflation.
The release of the May consumer price index data is expected to show that costs have remained high, driven by the ongoing conflict in the Middle East and its impact on oil and food prices. However, recent rollbacks in local pump prices may help ease inflationary pressures, providing a glimmer of hope for investors.
UMVA has gathered that the central bank's term deposit facility is a key tool in managing excess liquidity and guiding market yields towards its policy rate. By limiting its offerings to a single tenor, the bank aims to rationalize its liquidity operations and boost monetary policy transmission.
The latest data shows that the central bank's market operations have absorbed a significant amount of excess liquidity, with P1.2 trillion siphoned off from the market as of mid-February. This move is expected to have a lasting impact on the financial system, as investors continue to seek safer assets amid economic uncertainty.
