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Term deposit yields slip on RRR cut bets

YIELDS ON term deposits offered by the Bangko Sentral ng Pilipinas (BSP) on Wednesday inched down amid higher bids and expectations of a possible reduction in banks’ reserve requirement ratio (RRR).

Demand for the central bank’s term deposit facility (TDF) hit P644.806 billion on Wednesday, surpassing the P490 billion up for grabs as well as the P608.416 billion in tenders seen in the previous auction.

Broken down, bids for the seven-day papers reached P243.555 billion, beyond the P170-billion offering as well as the P208.985 billion in tenders recorded a week ago.

The one-week deposits fetched rates ranging from 1.65% to 1.75%, a narrower band than the 1.615% to 1.78% logged on Dec. 2. This caused the tenor’s average to settle at 1.7218%, lower by 0.74 basis point (bp) from the 1.7292% seen in the previous offering.

Meanwhile, bids for the 14-day papers hit amounted to P401.251 billion, going beyond the P320 billion up for grabs as well as the P399.431 billion in demand logged last week.

Accepted yields fell within 1.65% to 1.7468%, a thinner margin compared with the 1.625% to 1.7625% range seen last week, bringing the two-week paper’s average rate to 1.7191%, down by 0.7 bp from the 1.7261% fetched previously.

The central bank did not offer the 28-day term deposits for the ninth consecutive week. This follows the start of the central bank’s weekly offering of its own bills with the same tenor.

The TDF and the BSP’s securities are part of tools used by the central bank to mop up excess liquidity in the financial system and to better guide market interest rates.

Yields on the term deposits declined as the market is pricing in a possible cut in big banks’ RRR, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The BSP cut big banks’ reserve requirements by 200 bps to 12% earlier this year. The RRR of thrift and rural lenders were likewise lowered by 100 bps to three percent and two percent, respectively.

The Monetary Board authorized RRR cuts of up to 400 bps this year.

BSP Governor Benjamin E. Diokno has said he wants to cut banks’ RRR further and eventually bring it down to the single-digit level by the end of his term in mid-2023.

The central bank last month resumed its easing cycle, cutting benchmark interest rates anew to support the economy amid continued uncertainty due to the ongoing coronavirus pandemic and following recent typhoons.

The Monetary Board trimmed the rates on the BSP’s overnight reverse repurchase, lending, and deposit facilities by 25 bps to 2%, 2.5%, and 1.5%, respectively.

The central bank has already cumulatively lowered interest rates by 200 bps this year.

The Monetary Board will have its last policy meeting for the year on Dec. 17. — L.W.T. Noble

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