Rising auction yields set up possible BSP tightening
Interest rates for the central bank’s inflation-fighting term deposit window continued to rise during Wednesday’s auction, maintaining an uptrend that started in mid-February, thus reinforcing market expectations of looming monetary tightening next month.
Banks submitted a total of P96.1 billion worth of bids for the P90 billion that the Bangko Sentral ng Pilipinas (BSP) offered during this week’s auction, with the regulator accepting P87.9 billion in deposits.
The 7-day term deposit facility garnered the largest amount of tenders at P47 billion, with the regulator making a full award of P40 billion at an average yield of 3.4397 percent. This was higher than the previous week’s 3.3970 percent.
The 14-day instrument, meanwhile, received P31.2 billion worth of tenders from financial institutions for the P30 billion offered. The BSP made a full award with the average yield hitting 3.4648 percent, compared to last week’s 3.4370 percent.
The 28-day tenor was the only instrument that was undersubscribed with banks tendering P17.9 billion worth of bids for the P20 billion on offer. The average yield rose to 3.4574 percent from last week’s 3.41 percent.
BSP Governor Nestor Espenilla Jr. said this week’s lower auction volume was due to the upcoming holidays with bank clients needing more cash. The total volume will return to P110 billion after the holidays, he said.
The BSP chief earlier said that regulators had been allowing the term deposit rates to rise to help cap the local inflation rate, which stands at a three-year high.
“The longer-dated [interest rates] rates have already moved up,” he said, hinting that BSP’s key overnight rate would also follow the uptrend soon. “The overnight rate hasn’t adjusted yet. But it’s just a question of time.”
The BSP’s policy making Monetary Board will convene on May 10 to decide whether or not to raise interest rates after disappointing market watchers during their last two meetings in February and March by opting to keep them unchanged.
“We have allowed interest rates to move up in line with market conditions,” he said.
