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TDF yields climb after central bank’s rate hike

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FACADE of the Bangko Sentral ng Pilipinas along Roxas Boulevard, taken on December 5, 2014. — BW FILE PHOTO

By Melissa Luz T. Lopez, Senior Reporter

YIELDS FETCHED for term deposits moved higher this week, in line with the central bank’s expectations, following an aggressive rate hike which took effect early this month.

Banks wanted to park as much as P116.396 billion in idle funds under the Bangko Sentral ng Pilipinas (BSP) on Wednesday, higher than the P106.739 billion they offered to lock in under the term deposit facility (TDF).

The amount also settled above the P100 billion on the auction block, indicating abundant excess liquidity in the financial system.

Demand improved for these short-term papers, with a bias towards the two-week tenor as players sought to maximize gains from their unused funds. Meanwhile, average rates shot up to fresh record highs across all tenors.

The seven-day deposits saw tenders reach P43.811 billion, rising from the P42.169 billion seen the previous week and well above the P40 billion which the central bank wanted to sell.

In turn, banks asked for margins worth 4.2878% on average, climbing from the 4.2069% rate fetched a week ago as players sought for returns ranging from 4.1-4.375%.

Bulk of the bids went to the 14-day tenor, which received P49.25 billion pledges versus the BSP’s P40 billion offer. This reversed last week’s pale demand which settled at just P37.887 billion.

This pushed interest rates higher to 4.3892%, nearly 10 basis points (bp) higher than the 4.2976% accepted the previous week.

On the other hand, appetite for the 28-day papers slightly eased to P23.335 billion, down from last week’s P26.683 billion but still above the P20 billion offering. Interest rates went on an uptrend and averaged 4.4105% from 4.359% during the Aug. 22 auction.

The TDF stands as the central bank’s main tool to arrest excess money supply in the financial system. The BSP conducts the weekly auctions of short-term papers and decides on the rates to accept, with the view that this will signal the direction of market and interbank rates.

The goal is to bring rates closer to 3.5-4.5%, the current benchmark after a cumulative 100 bps increase from the central bank.

The Monetary Board fired off its strongest tightening move in a decade during their Aug. 9 meeting amid signs that inflation could remain elevated until 2019.

“You raise policy rates so that you will influence market rates. I will be uncomfortable if the market rates did not move up, then that means monetary policy is not working,” BSP Governor Nestor A. Espenilla, Jr. told reporters on Tuesday when asked to comment about TDF yields. “It is reasonable under the circumstances.”

Offer volumes per TDF tenor will be unchanged next week.