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Term deposit yields surge to all-time high

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By Melissa Luz T. Lopez, Senior Reporter

YIELDS under the term deposit facility (TDF) surged to all-time highs yesterday, with strong demand seen for the week-long papers as banks avoided long placements ahead of an expected rate hike from the central bank.

Bids for term deposits reached P65.855 billion on Wednesday, easing from the P87.249 billion tenders received a week ago but still higher than the P60 billion which the Bangko Sentral ng Pilipinas (BSP) wanted to sell.

However, nearly all the offers went into the week-long instruments, with players shying away from the longer tenors a day ahead of the BSP’s rate-setting meeting today.

Banks scrambled to get hold of seven-day papers, with demand reaching P51.627 billion versus the P40 billion on the auction block. The level dropped from the P60.324 billion offers received during the Sept. 19 exercise.

Bidders also asked for higher returns, with the average yield climbing to 4.4215% versus the 4.3884% fetched a week ago. This hovered close to the 4.5% ceiling rate set by the central bank.

Demand for the 14-day instruments also slumped to P9.643 billion, just half the P17.44 billion bids received last week and barely filling the reduced P10 billion offering this week. The BSP even had to reject P1 billion worth of tenders due to steep returns sought by banks.

As a result, the average rate awarded by the central bank stood at 4.4722%, rising from the 4.4339% rate last week as yield requests ranged from 4.4-4.5%.

Banks were also cool to the 28-day deposits as they only put forward P4.585 billion worth of tenders, just half the P9.485 billion placements during the previous auction.

Rates also settled higher to a 4.4877% average, inching up from last week’s 4.4754%.

The TDF is currently the central bank’s primary tool to arrest excess money supply in the financial system. The weekly auctions of short-term papers are meant to usher market and interbank rates within the current benchmark range of 3.5-4.5%.

The central bank slashed the auction volume for the week coming from P70 billion a week ago as they see cooling demand for term deposits. BSP Deputy Governor Diwa C. Guinigundo said last week that there is “lower excess liquidity” in the system, as banks find other avenues to put their money in.

“More funds are going into loans, investments and dollar purchases. This is auspicious because the banks are doing a good job in financial intermediation especially in the face of government infra projects aimed at addressing our large infra gap and enhance our productive capacity,” Mr. Guinigundo said in a text message when asked to explain the lower auction amount.

The weak appetite also comes ahead of the BSP’s policy review today. Market economists are certain that the Monetary Board will raise rates, with 15 of 16 analysts tapped for a BusinessWorld poll saying the hike will be worth 50 basis points. Such a move is expected amid surging inflation and a sustained depreciation of the peso.

If realized, this would bring the key policy rate to 4.5%, the highest since March 2009.