TERM DEPOSIT YIELDS fell on Wednesday ahead of a widely expected rate cut by the Bangko Sentral ng Pilipinas (BSP).
The central bank’s term deposit facility (TDF) fetched bids amounting to P191.794 billion on Wednesday, slightly above the P190-billion offering but was lower the P251.112 billion in tenders for the same volume auctioned off a week ago.
Broken down, tenders for the seven-day papers reached P98.069 billion, below the P100 billion auctioned off by the central bank and the P137.878 billion in bids for the same volume offered the previous week.
Banks asked for yields ranging from 6.2355% to 6.28%, wider than the 6.25-6.28% band seen a week earlier. This caused the average rate of the one-week deposits to slip by 0.26 basis point (bp) to 6.2642% from 6.2668% previously.
Meanwhile, bids for the 14-day term deposits amounted to P93.725 billion, above the P90-billion offering but below the P113.234 billion in tenders for the same amount auctioned off a week earlier.
Accepted rates for the tenor were from 6.19% to 6.35%, lower than the 6.25% to 6.36% margin seen a week ago. With this, the average rate for the two-week deposits fell by 3.42 bps to 6.3019% from 6.3361% logged in the prior auction.
The central bank has not auctioned 28-day term deposits for more than four years to give way to its weekly offerings 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 went down ahead of the BSP’s announcement of its policy decision on Wednesday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The Monetary Board on Wednesday cut benchmark interest rates by 25 bps for a second straight meeting, as expected by 16 of 19 analysts in a BusinessWorld poll, as price pressures remain manageable.
This brought its policy rate to 6%. The interest rates on the BSP’s overnight deposit and lending facilities were also adjusted to 5.5% and 6.5%, respectively.
The BSP in August kicked off its easing cycle with a 25-bp reduction, marking its first rate cut in nearly four years.
BSP Governor Eli M. Remolona, Jr. said at a briefing on Wednesday that they could cut benchmark rates by another 25 bps at their Dec. 19 meeting, noting that a one-time 50-bp reduction could be “too aggressive a cut,” except in a hard landing scenario.
Mr. Remolona added that they could slash rates by 100 bps in 2025, but said they prefer to take “baby steps” in their policy easing cycle.
Meanwhile, Mr. Ricafort said that lower global oil prices recently also contributed to the decline in TDF yields.
Oil prices inched higher on Wednesday amid uncertainty over what may happen next in the Middle East conflict, after demand concerns knocked the market to its lowest since early October in the previous session, Reuters reported.
Brent crude oil futures rose 19 cents or 0.3% to $74.44 a barrel by 0630 GMT. US West Texas Intermediate crude futures climbed 24 cents or 0.3% to $70.82 per barrel.
Oil prices tumbled more than 4% to a near two-week low on Tuesday due to a weaker demand outlook and after a media report said Israel would not strike Iranian nuclear and oil sites, easing fears of a supply disruption.
However, concerns about an escalation in the conflict between Israel and Iran-backed militant group Hezbollah persist, with the US on Tuesday saying it opposed the scope of Israel’s air strikes in Beirut over the past few weeks.
Term deposit yields went down ahead of the cut in banks’ reserve requirement ratios (RRR) that will take effect next week, Mr. Ricafort added.
The BSP will reduce the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5% effective on Oct. 25.
It will also cut the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders will be reduced by 100 bps to 1%. Rural and cooperative banks’ RRR will likewise go down by 100 bps to 0%.
Mr. Remolona earlier said they could bring down the RRR for big banks to as low as zero within his term, which ends in 2029. — Luisa Maria Jacinta C. Jocson
