BSP’s anti-inflation yields move sideways as price spikes ease

Yields on securities offered by the central bank at its weekly anti-inflation operations were mixed on Wednesday after banks swamped the auction amid expectations of declining consumer prices, and thus, possibly declining interest rates as well over the short term.

Data from the Bangko Sentral ng Pilipinas (BSP) showed interest rates across all three tenors of the monetary regulator’s term deposit facility (TDF) moved sideways, thanks to heavy interest from bidding financial institutions.

The yield on the 7-day facility declined slightly to 5.0706 percent from the previous week’s 5.0784 percent. The central bank offered P20 billion in the auction, but banks put up P35.3 billion in bids. The regulator made a full award of P20 billion.

The yield on the 14-day facility, meanwhile, rose slightly to 5.1530 percent from the previous week’s 5.1319 percent. The central bank offered P20 billion in the auction, with banks submitting P23.2 billion in bids. The regulator also made a full award of P20 billion.

Finally, the yield on the 28-day security also rose to 5.1694 from the previous week’s 5.1672. Banks submitted P14.8 billion in bids for the P10 billion on offer, with the regulator making a full award of P10 billion.

For this week, the BSP increased the total auction size for its TDF to P50 billion from last week’s P30 billion on account of increasing market activity after the long Christmas holiday break. Next week’s auction size is also pegged at P50 billion.

According to bankers, the muted movement in TDF yields are due mainly to the declining inflation rate which fell to 5.1 percent in December — its lowest since mid-2018 — a confirmation that the central bank’s aggressive anti-inflation policies of last year are starting to moderate the increase in consumer prices.

The BSP’s main tool against high inflation is its overnight borrowing rate, which dictates the movement of interest rates for commercial and retail lending across the entire yield curve, from short to long term.

Last year, BSP raised interest rates by a combined 175 basis points from May to November in what critics described as a delayed reaction to inflation spikes that began in January 2018.

The BSP’s overnight rates are supported in its anti-inflation liquidity mopping up role by the TDF window, which helps immobilize anywhere between P50 billion to P100 billion in idle funds each week, depending on how much the central bank puts up for tender. /kga