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TDF yields climb on BSP signals, May CPI estimate


YIELDS on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) climbed on Wednesday due to rate hike signals and with May inflation seen to have breached 5%.

Total bids for the central bank’s term deposits reached P345.386 billion, going above the P300-billion offer as well as the P301.034 billion in tenders last week.

Broken down, the seven-day papers fetched bids amounting to P168.867 billion, higher than the P130-billion auctioned off by the BSP. This was also higher than the P114.843 billion in tenders logged in the previous auction.

Banks asked for yields ranging from 2% to 2.4%, a narrower margin compared with the 1.97% to 2.67% band seen a week ago. This caused the average rate of the one-week paper to rise by 7.51 basis points (bps) to 2.2713% from 2.1962%.

Meanwhile, demand for the 14-day term deposits amounted to P176.519 billion, above the P170-billion offering. However, this was lower than P186.191 billion in tenders recorded a week ago.

Accepted rates for the papers were from 2.125% to 2.66%, higher than the 2% to 2.329% range seen on May 25. With this, the average rate of the two-week paper inched up by 5.52 bps to 2.2921% from 2.2369% in the previous week’s auction.   

The central bank has not auctioned 28-day term deposits for more than a year to give way to its weekly offering of securities with the same tenor.

The term deposits and the 28-day bills are used by the BSP to mop up excess liquidity in the financial system and to better guide market rates.

Term deposit yields were higher as the central bank chief hinted at another rate increase at the Monetary Board’s June 23 meeting, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP is likely to raise key interest rates by another 25 bps at its next policy review this month, its chief said last week.

“We are probably inclined to have another 25-basis-point adjustment on our next Monetary Board meeting which is on June 23,” BSP Governor Benjamin E. Diokno said.

The BSP raised benchmark interest rates by 25 bps on May 19, marking its first hike since November 2018, as it tries to temper rising inflationary pressures.

The Monetary Board increased the key policy rate by 25 bps to 2.25%. Interest rates on the overnight deposit and lending facilities were also hiked by 25 bps to 1.75% and 2.75%, respectively.

At that meeting, the central bank also upwardly revised its average inflation forecast for 2022 to 4.6% from the previous forecast of 4.3%, exceeding the 2-4% target band. For 2023, the BSP’s inflation forecast was hiked to 3.9% from 3.6% previously.

Mr. Ricafort said TDF rates also rose due to the BSP’s higher inflation estimate for May, high oil prices, and continued hawkish signals from US Federal Reserve officials.

Headline inflation likely quickened and breached 5% in May due to higher pump and food prices and a weaker peso, the BSP chief said on Tuesday.

May inflation may have reached between 5% and 5.8%, BSP Governor Benjamin E. Diokno said in a Viber message. This is well above the 2-4% target of the central bank for this year.

The consumer price index (CPI) last hit the 5% level in December 2018 and stood at 5.2% that month.

May inflation data will be released by the Philippine Statistics Authority on June 7. Headline inflation was at 4.9% in April, the highest in more than three years.

Meanwhile, oil prices fell on Tuesday after the Wall Street Journal reported that oil producing nations were considering excluding Russia from a production deal, paving the way for middle eastern countries to increase output, Reuters reported.

Brent crude futures retreated from an almost three-month high after the report and were last steady at $116.18 a barrel.

On the other hand, Federal Reserve Governor Christopher Waller on Monday said he is advocating to keep 50-bp rate hikes on the table until substantial reductions are seen in inflation, winding back expectations that the Fed might pause for breath after hikes in June and July. — KBT with Reuters

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