Banks flock to short-term BSP deposits amid stubbornly high inflation

Cash-rich financial institutions bid aggressively on Wednesday for the right to lodge their funds in short-term securities of the Bangko Sentral ng Pilipinas (BSP), marking the third week that the regulator’s term deposit facility auction was oversubscribed.

Data from the BSP showed that banks submitted a total of P128.6 billion worth of bids for the combined P100 billion of one-, two- and four-week deposits offered by the central bank.

As a result, the yields of these instruments have begun to taper off from their sustained uptrend over the last three months.

One bank treasurer, asking that his name be withheld, opined that the renewed interest in short-term deposit instruments was partly due to expectations of higher inflation over the next few months – a phenomenon that traditionally resulted in higher interest rates, as well.

“Bankers know that interest rates will still be going up, so very few are willing to put their money in long-term instruments right now,” he said, explaining the attractiveness of BSP’s short-term deposits. “That’s why everyone is heading to TDFs these last few weeks.”

During Wednesday’s auction, banks submitted P47.3 billion worth of bids for the P40 billion on offer for the seven-day term deposit instrument.

The central bank accepted a total of P40 billion worth at an average yield of 3.7586 percent, marginally higher than the previous week’s 3.7537 percent, but lower than the 3.7779-percent yield of two weeks ago.

For the 14-day instrument, banks submitted P57.4 billion worth of bids for the P40 billion on offer.

The central bank accepted P40 billion with an average yield of 3.9220 percent. This was slightly lower than last week’s 3.9258-percent yield and also lower than the 3.9309 percent from two weeks ago.

Finally, financial institutions submitted P23.9 billion in bids for the P20 billion on offer for the 28-day instrument.

The resulting average yield was 3.9416 percent, marking a slight uptick from last week’s 3.9346 percent, but slightly lower than the 3.9442 of two weeks ago.

Central bank officials have said that they expected the country’s inflation rate – currently pegged at 5.2 percent in June, or the highest level in at least five years – to peak by the fourth quarter of this year, before normalizing in 2019.

A majority of market watchers expect the BSP’s policy making Monetary Board to raise its key interest rate for a third consecutive time when they meet next month in response to the stubbornly high inflation rate. /atm