TDF yields drop as BSP hints at August rate cut

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits continued to drop on Wednesday, even as the shorter tenor went undersubscribed, following signals of a potential rate cut next month.

The central bank’s term deposit facility (TDF) fetched bids amounting to just P88.578 billion on Wednesday, below the P100 billion placed on the auction block and the P144.309 billion for the same volume offered a week ago. As a result, the BSP awarded only P81.69 billion in term deposits.

Broken down, tenders for the seven-day papers reached only P31.69 billion, lower than the P50 billion auctioned off by the central bank and the P71.503 billion in bids for the same offer the previous week. The BSP accepted all the submitted tenders for the one-week tenor.

Accepted yields were from 5.23% to 5.265%, slightly narrower than the 5.23% to 5.2675% band seen a week ago. This caused the average rate of the one-week deposits to inch down by 0.47 basis point (bp) to 5.2521% from 5.2568% previously.

Meanwhile, bids for the 14-day term deposits amounted to P56.888 billion, higher than the P50-billion offering and the P72.806 billion in tenders for the same volume auctioned off a week prior. The central bank made a full P50-billion award of the two-week tenor.

Banks asked for yields ranging from 5.25% to 5.33%, also tighter compared with the 5.25% to 5.3595% margin seen a week ago. With this, the weighted average accepted rate for the two-week deposits fell by 2.25 bps to 5.3009% from the 5.3234% quoted in the prior auction.

The BSP has not auctioned off 28-day term deposits for nearly five years to give way to its weekly offerings of securities with the same tenor.

Both the TDF and BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates towards the policy rate.

“The BSP TDF average auction yields continued to ease amid expectations of continued benign inflation and more dovish signals from local monetary authorities recently,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. told reporters on Tuesday that a rate cut is still “on the table” at the Monetary Board’s next policy review on Aug. 28.

If realized, this would mark the third straight rate cut delivered by the Philippine central bank since April.

The BSP has slashed benchmark borrowing costs by a total of 50 bps this year, with the policy rate now at 5.25%. This brought cumulative reductions since August last year to 125 bps.

Mr. Remolona also said he is keeping his outlook for two more rate cuts this year.

After August, the Monetary Board has two remaining meetings scheduled for October and December.

Further BSP rate cuts would also be supported by potential monetary easing in the United States due to the economic impact of the Trump administration’s tariff policies, Mr. Ricafort said.

Economists expect the US Federal Reserve will keep its benchmark interest rate in the 4.25%-4.5% range after the end of a two-day policy meeting overnight pending more clarity on the impact of tariffs on inflation, resisting pressure from US President Donald J. Trump to lower borrowing costs, Reuters reported.

The Fed cut rates three times in 2024, with the last move coming in December.

There is speculation that Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman could issue dissents if the Fed holds the policy rate steady for the fifth time since December. Both were appointed by Mr. Trump as was Mr. Powell.

Mr. Ricafort added that upcoming maturities of government debt in the next two months worth about P800 billion helped drive TDF yields down as market players are already looking at reinvestment options for their funds, with current rate levels being attractive compared with the low yields quoted for the original issuances years ago. — Luisa Maria Jacinta C. Jocson with Reuters