Banks shun BSP’s anti-inflation auction on rate hike prospects
Financial institutions shied away from the central bank’s short term borrowing window on Wednesday amid divided market opinion on whether regulators would raise interest rates when the policy making Monetary Board meets to decide on interest rates on Thursday.
Given the uncertainty on whether the Bangko Sentral ng Pilipinas (BSP) would implement another round of policy tightening amid indications of plateauing inflation, banks submitted fewer bids during the weekly auction for short term deposit instruments.
On Wednesday, financial institutions pushed interest rates higher on the seven-, 14- and 28-day instruments amid weak demand for all three tenors.
The total volume for the entire Term Deposit Facility (TDF) auction was reduced by the central bank to P90 billion fromP100 billion in the previous week in anticipation of weaker demand, but even this reduced offer proved too large for banks’ meager appetites.
The yield on the seven-day term deposit facility rose to 4.8291 percent from the previous week’s 4.7442 percent. Banks tendered only P35.4 billion worth of bids for the P50 billion on offer, with the central bank making a partial award of P35.4 billion.
Meanwhile, the central bank’s 14-day term deposit instrument also saw an increase in its yield to 4.8642 percent from the previous week’s 4.7890 percent. Banks submitted only P19.3 billion in bids for the P20 billion offered, with authorities making a partial award of P19.3 billion.
Finally, the yield on the 28-day term deposit facility rose to 4.9162 percent from the previous week’s 4.9010 percent. Banks tendered only P10.8 billion worth of bids for the P20 billion on auction, with the central bank accepting the entire P10.8 billion offer.
All told, financial institutions submitted P65.6 billion in bids for the P90 billion that the central bank attempted to “sterilize” from the financial system this week in a bid to cap the inflation rate.
Central bank officials have vowed to carefully weigh the need for another rate hike after poring over the latest inflation data.
The Monetary Board will convene on Thursday, November 15, to decide on the response to the latest price developments which, at 6.7 percent for October, represents a nine-year high. /kga
