Term deposit yields decline on BSP rate decision, Fitch move

TERM DEPOSIT yields slipped on Wednesday despite lower bids following the recent rate cut from the central bank and Fitch Ratings’ upgrade of its outlook on its assessment of the Philippines.

Total bids for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) amounted to P170.025 billion on Wednesday, slightly higher than the P170 billion on offer. However, tenders this week slipped from the P207.804 billion seen a week ago versus the P200 billion up for grabs.

Broken down, bids for the one-week papers totaled P49.66 billion, lower than the P60 billion on offer and also down from the P66.749 billion in tenders logged a week ago for the P80-billion offering.

Yields for the seven-day deposits ranged from 3.75% to 4.3%, a wider margin compared to the 3.95-4.4% range seen last week. This resulted in an average rate of 3.8943%, down by 12.97 basis points (bps) from last week’s 4.024%.

For the two-week papers, tenders amounted to P63.545 billion, going beyond the P60 billion auctioned off by the BSP but failing to beat the P64.814 billion in bids last week.

Lenders asked for yields ranging from 3.625% to 4%, a wider band compared to the 3.98-4.05% margin logged the previous week. This caused the average rate for the 14-day papers to settle at 3.8772%, slipping by 14.25 bps from the 4.0197% seen last week.

Meanwhile, the 28-day papers lured bids worth P56.82 billion, surpassing the P50 billion up for grabs but failing to beat P76.241 billion in bids last week, which was against a P60-billion offer.

Banks sought returns ranging from 3.6875% to 4%, a wider margin compared to the 4-4.0625% margin logged on Feb. 5. With this, average rate for the 28-day term deposits clocked in at 3.9054%, down by 13.65 bps from the 4.0419% seen a week ago.

BSP Deputy Governor Francisco G. Dakila, Jr. attributed the lower rates to the central bank’s decision to cut policy rates.

“Average interest rates fell, due primarily to the 25-bp reduction in the RRP (reverse repurchase) rate on Feb. 6,” Mr. Dakila said in a statement on Wednesday.

Last week, the Monetary Board (MB) slashed policy rates by 25 bps, a “preemptive reduction” as the MB priced in the possible effects of the virus outbreak and the prospects of a global economic slowdown.

This has reduced rates for the RRP as well as the overnight lending and deposit facilities to 3.75%, 4.25%, and 3.25%.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion noted that the lower yields came after Fitch’s upgrade of its outlook on the Philippines’ sovereign rating to “positive.”

“After market hours yesterday (Wednesday), there were buying interests after the said revision by Fitch Ratings was publicly released. Indeed, yields were expected to trade lower mirroring the TDF auction,” Mr. Asuncion said in an e-mail.

Fitch upgraded its outlook for the Philippines’ credit rating to positive from stable, which indicates that the rating could stay at its present level or be upgraded within the next two years.

It also affirmed its credit rating for the Philippines at “BBB,” a notch above the minimum investment grade.

In its report, Fitch said the country will likely be among the region’s fastest-growing economies for 2020 and 2021, with its expansion well above the current “BBB” median. — Luz Wendy T. Noble