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—an indication that expectations of further rate hikes are now muted.

“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 were now lower after the September inflation data 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 for 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.

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.

The BSP earlier vowed to carefully weigh the need for another rate hike.