The Bangko Sentral ng Pilipinas' (BSP) term deposits have seen yields rise for a sixth consecutive week as investors adjust to potentially higher interest rates due to persistent inflation risks.
Demand for the BSP's seven-day term deposit facility totaled P137.524 billion on Wednesday, exceeding the P130 billion offered but decreasing from last week's P171.444 billion in tenders for the same volume.
The lower bid-to-cover ratio of 1.0579 times was seen compared to the 1.3188 ratio in the previous auction, but the BSP still fully awarded its P130-billion offer after the oversubscription.
Accepted rates for one-week deposits ranged from 4.5% to 4.77%, narrower and higher than last week's 4.25% to 4.7499% range, causing the weighted average accepted rate to climb by 1.1 basis points to 4.732% from 4.721% the previous week.
The rising average TDF yield came as BSP Governor Eli M. Remolona, Jr. left the door open to more aggressive policy action to combat inflation pressures, which remain strong despite his comment that the odds of an outsized move would be small.
The higher rate still remained below the BSP's key overnight borrowing rate of 4.75%, reflecting strong liquidity in the financial system, as seen in the robust demand for the offering.
Inflation is a major concern for the central bank, with the average rate reaching 4.8% in June, exceeding the 3% target set by the BSP since the Middle East war began in late February.
The Monetary Board has already hiked benchmark interest rates by a total of 50 basis points since April in response to the global oil price increases due to the conflict, which continue to threaten the country's inflation outlook.
Policymakers have signaled their readiness to take further action to curb domestic prices and keep inflation expectations anchored, with the Monetary Board's next rate-setting meeting scheduled for August 27.
The BSP uses the TDF and BSP bills to manage excess liquidity in the financial system and guide market yields towards its policy rate, with a goal to absorb P1.3 trillion in excess liquidity as of early June, with 6.9% of this being siphoned off via the term deposit facility.
The central bank's policy actions have been aimed at addressing the potential impact of President Ferdinand R. Marcos, Jr.'s proposed tax reforms, which could further increase inflationary pressures.
The peso's recent weakness, including its worst close against the greenback at P61.847 per dollar on July 24, has also been a concern for the BSP, as it may further exacerbate inflation risks.
