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Philippines: Banks swarm term deposit auction, rates rise
MANILA, Philippines — Term deposit rates rose across the board yesterday as banks swarmed the term deposit auction facility of the Bangko Sentral ng Pilipinas (BSP) amid the rising expectation of a rate hike next week.
The seven-day term deposits fetched a higher rate 3.4434 percent from 3.3967 percent last week, while the yield of the 14-day term tenor rose to 3.4704 percent from 3.4370 percent.
Likewise, the 28-day term deposits commanded a higher rate of 3.465 percent from 3.4097 percent.
Banks continued to park their excess liquidity in the TDF with both the seven and 14-day tenors oversubscribed at yesterday’s auction. The P90 billion offering was slightly oversubscribed as bids reached to P97.54 billion.
Tenders for the P40 billion seven-day term deposit offering amounted to P50.12 billion, while the 14-day tenor was lightly oversubscribed at P30.66 billion versus the issue size of P30 billion.
On the other hand, bids for the P20 billion 28-day term deposits were low as only P16.76 billion worth of tenders were received.
BSP Deputy Governor Diwa Guinigundo had said mounting inflationary pressures, as well as further rate hikes by the US Federal Reserve would continue to push term deposit rates higher.
“Demand for higher rate is driven by what banks believe to be mounting inflationary pressure that could warrant higher returns on top of the likelihood of a US rate hike,” Guinigundo said.
The BSP expects the April inflation to remain elevated at a range of 3.9 percent to 4.7 percent due to higher rice and oil prices, as well as more expensive electricity rates.
Inflation rose to 4.3 percent in March, exceeding the BSP’s target of two to four percent.
The TDF is a key liquidity absorption facility used by central banks for liquidity management. The facility withdraws a large part of the structural liquidity from the local financial system as part of the shift to the interest rate corridor (IRC) framework in June 2016 to bring market rates closer to the BSP policy rate.
Economists expect the Monetary Board to finally give in to inflationary pressures and raise interest rates by 25 basis points on May 10.
Source: https://www.philstar.com/business/2018/05/03/1811533/banks-swarm-term-deposit-auction-rates-rise#dwY5ZZA4Kt5L04QW.99