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Yields on BSP’s term deposits drop ahead of policy meeting

YIELDS ON term deposits offered by the Bangko Sentral ng Pilipinas (BSP) on Wednesday dipped before the Monetary Board’s (MB) policy meeting as investors priced in a possible reduction in banks’ reserve requirements.

Total bids for the central bank’s term deposit facility (TDF) amounted to P570.33 billion on Wednesday, above the P510-billion offering but below the P644.806 billion in demand seen a week ago.

Broken down, demand for the one-week papers amounted to P235.871 billion, higher than the P170 billion up for grabs but failing to beat the P243.555 billion in bids logged in the previous auction.

Accepted yields for the one-week term deposits ranged from 1.65% to 1.7296%, a narrower margin than the 1.65% to 1.75% band logged a week ago. With this, the tenor’s average rate went down by 1.72 basis points (bps) to settle at 1.7046% from the 1.7218% seen on Dec. 9.

Meanwhile, the 13-day deposits attracted bids worth P334.459 billion, lower than the P340-billion offer volume as well as the P401.251 billion in tenders seen last week.

Banks sought rates ranging from 1.65% to 1.76%, also narrowing from the 1.65% to 1.7468% band logged in the previous auction. This brought the two-week paper’s average yield to 1.7163%, slipping by 0.28 bp from the 1.7191% recorded last week.

The central bank did not auction off 28-day term deposits for the 10th consecutive week. This follows the start of the BSP’s weekly offerings 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 gather excess liquidity in the financial system and to better guide market interest rates.

“The results in Wednesday’s auction reflect market participant’s continued preference for the shorter tenor in view of the holidays. At the same time, financial system liquidity remains ample,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said yields on the term deposits declined ahead of the BSP Monetary Board’s final policy meeting for the year on Thursday, Dec. 17.

“[T]here is a possible cut in large banks’ RRR (reserve requirement ratio)…,” Mr. Ricafort said in a text message.

For this year thus far, the BSP has slashed the RRR of universal and commercial banks by 200 bps to 12%, while the reserve ratios of thrift and rural lenders were cut by 100 bps to three percent and two percent, respectively.

The MB is authorized to cut banks’ reserve ratios by up to 400 bps this year.

Meanwhile, the central bank will likely keep its key policy rates at their current record low levels as it considers the recent uptick in the country’s inflation rate, analysts said.

A BusinessWorld poll last week showed all 15 analysts do not expect the Monetary Board to go for another rate cut at its seventh and final policy meeting for the year.

The BSP unexpectedly slashed benchmark rates by 25 bps last month, bringing the yields on its overnight reverse repurchase, lending, and deposit facilities to record lows of 2%, 2.5%, and 1.5%.

The central bank has lowered borrowing costs by 200 bps this year. — Luz Wendy T. Noble

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