By Lee C. Chipongian
Yields of the central bank’s term deposit facility (TDF) closed mixed on Wednesday while volume was lower compared to last week.
Tenders amounted to ₱82.09 billion, barely more than offer of ₱80 billion. The offer was lower than October 23’s ₱90 billion.
Based on Bangko Sentral ng Pilipinas (BSP) data, the 7-day TDF’s average rate fell to 4.2053 percent from 4.2055 percent previously. Offered at ₱30 billion which was higher than ₱20 billion last week, tenders amounted to ₱30.19 billion.
The 14-day tenor’s average rate also dipped to 4.2451 percent from 4.2477 percent last week. The volume is lower at ₱20 billion versus P30 billion last October 23. Bids totaled ₱22.92 billion.
The BSP also decreased the 28-day TDF’s offer to ₱30 billion from ₱40 billion. Yields went up to 4.2886 percent from 4.2480 percent. Bids were lower than offer at ₱28.98 billion.
The TDF rates mirrored the drop in BSP key rates in the past three weeks after the Monetary Board cut RRP anew by another 25 basis points (bps) last September 26.
The BSP decided to trim policy rates after the inflation rate fell to 0.9 percent in September from 1.7 percent last August. For the first nine months, inflation averaged at 2.8 percent. The BSP currently has a 2019 inflation forecast of 2.5 percent.
The decelerating inflation also convinced the Monetary Board to implement a total 400 bps reduction in the reserve requirement ratio (RRR). The last 200 bps will be applied in the first week of November and December.
So far, based on updated domestic liquidity and bank lending numbers, the liquidity released by the RRR cuts – which was the first 200 bps equivalent to P200 billion end-July – the reduction in reserves have yet to have a significant impact. The extra liquidity went to bonds and some were in the TDF.
Security Bank Corp. economist Robert Dan Roces in a commentary said they expect inflation to remain low for the month of October at 0.8 percent.
Roces said the “slow inflation rate may be attributed to essentially unchanged price levels in rice, electricity, and transport costs plus favorable year-over-year base effects. We expect inflation to remain below target until November.