Short term interest rates dip amid early indications of inflation plateau

Financial institutions swarmed the central bank’s short term borrowing window on Wednesday, with the extra liquidity resulting in a slight dip in yields across all tenors of the regulator’s term deposit facility (TDF) — an indication that expectations of further rate hikes are now muted after early indications that inflation may be plateauing.

“The market is liquid right now so, naturally, that will be reflected in the rates, too,” a bank treasurer said, explaining that prospects of further monetary policy tightening are now lower after the September inflation data that showed a slight month-on-month deceleration in price hikes.

During Wednesday’s auction, financial institutions pushed interest rates lower on the seven-, 14- and 28-day instruments despite weak demand for the last two tenors.

The total volume for the entire TDF auction was maintained by the central bank at P80 billion for the second consecutive week, coming from P60 billion in the first week of the month in anticipation of increased interest from banks.

The yield on the seven-day term deposit facility declined to 4.7207 percent from the previous week’s 4.7274 percent. Banks tendered P66 billion worth of bids for the P50 billion on offer, with the central bank making a full award of P50 billion.

Meanwhile, the central bank’s 14-day term deposit instrument also saw a decline in its yield to 4.7650 percent from the previous week’s 4.7729 percent. Banks submitted P31.2 billion in bids for the P20 billion offered, with authorities making a full award of P20 billion.

Finally, the yield on the 28-day term deposit facility rose slightly to 4.8362 percent from the previous week’s 4.8549 percent. Banks tendered only P21.8 billion worth of bids for the P10 billion on auction, with the central bank accepting the entire P10 billion.

All told, financial institutions submitted P119 billion in bids for the P80 billion that the central bank attempted to “sterilize” from the financial system this week in a bid to cap the inflation rate. Of this amount, P80 billion in bids were accepted.

Central bank officials earlier vowed to carefully weigh the need for another rate hike after poring over the latest inflation data.

The Monetary Board will convene on November 15 to decide on the response to the latest price developments which, at 6.7 percent for September, represents a nine-year high.  /kga