Banks push up BSP yields as rate hike expectations grow

Interest rates for the liquidity mop up tool of the Bangko Sentral ng Pilipinas continued their steady rise — an uptrend that started in mid-February — as bankers tried to anticipate a possible monetary policy tightening move next week.

During Wednesday’s weekly term deposit facility auction, banks tendered P97.4 billion worth of bids for the P90 billion that authorities offered to accept. The central bank eventually accepted P86.7 billion worth of bids, with their yields rising across the board.

“Banks are factoring in a broad uptick in rates, plus what looks like a rate hike when the Monetary Board meets,” a bank treasurer said in a telephone interview. “That’s why bids were most aggressive on the shorter end.”

Indeed, banks tendered P50.1 billion worth of bids for the 7-day term deposit facility, with the central bank accepting P40 billion for a full award. The average yield rose to 3.4434 percent from 3.4397 percent in the previous week.

The term deposit facility is a scheme where authorities entice banks to “sterilize” idle cash by lodging them with the central bank for a short period of time, thus preventing the funds from circulating in the economy and potentially further aggravating inflation.

The inflation rate stands at a three-year high of 4.6 percent as of March, and central bank economists warned that this could have risen further to as high as 4.7 percent in April due to rising international crude oil prices that add to the effects of domestic tax hikes.

On Wednesday, banks also tendered P30.6 billion worth of bids for the 14-day term deposit facility, with the BSP making a full award of P30 billion. The average yield rose to 3.4704 percent from last week’s 3.4648 percent.

Finally, the longest tenor of the liquidity mop up scheme — the 28-day facility — drew tenders worth only P16.7 billion from banks, despite the BSP indicating an appetite of as much as P20 billion worth of deposits. Authorities accepted the entire amount tendered by banks, which still managed to push yields up to an average of 3.4650 percent from last week’s 3.4574 percent.

The BSP chief had earlier said that allowing banks to bid up interest rates for the term deposit facility was a deliberate move by regulators to help cap the local inflation rate, which stands at a three-year high.

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.