Term deposit yield climbs as BSP tightens stance

THE CENTRAL BANK’S one-week term deposits fetched a higher average yield on Wednesday, even as demand soared, as the market priced in the latest rate hike and expectations of further policy tightening.

The Bangko Sentral ng Pilipinas’ (BSP) seven-day term deposit facility (TDF) drew P124.436 billion in tenders, more than the P80-billion plan and jumping from the P94.191 billion in bids for the same offer volume last week.

This translated to a bid-to-cover ratio of 1.5555 times, rising from 1.1774 ratio recorded a week ago.

As a result, the central bank fully awarded its offer.

Accepted yields for the one-week papers widened to the 4% to 4.505% margin this week from the 4% to 4.2599% range seen in the previous auction. This resulted in a weighted average accepted rate of 4.4161%, soaring by 20.98 basis points (bps) from the 4.2063% recorded last week.

The week-on-week increase in the average term deposit yield came following the BSP’s move to raise benchmark interest rates last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The market also priced in hints about further hikes if the Middle East war continues, which would threaten the Philippine inflation outlook, he said, along with the peso’s latest slide that could drive up import costs.

Still, the average TDF rate remained below the policy rate of 4.5% amid strong demand for the offering, which could reflect ample liquidity in the financial system, Mr. Ricafort noted.

Last week, the Monetary Board raised the benchmark rates by 25 bps, marking its first hike since October 2023.

Mr. Remolona signaled further tightening ahead via “a succession of modest rate hikes” as they try to quell spiraling prices due to the Middle East conflict amid worsening inflation expectations brought by the global oil shock.

The central bank raised its inflation forecasts to 6.3% for 2026 and 4.3% for 2027 from 5.1% and 3.8% previously. Both are above its 2%-4% tolerance band.

Inflation already breached the target in March, hitting a two-year high of 4.1% and bringing the three-month average to 2.8%.

Efforts to end the Iran conflict were at an impasse on Tuesday with US President Donald J. Trump unhappy with the latest proposal from Tehran, which he said had informed the US it was in a “state of collapse” and figuring out its leadership situation, Reuters reported.

Iran’s most recent offer for resolving the two-month war would set aside discussion of its nuclear program until the conflict was concluded and shipping disputes resolved.

But Mr. Trump wants nuclear issues dealt with from the outset, a US official briefed on Mr. Trump’s Monday meeting with his advisers said.

In a Truth Social post on Tuesday, Mr. Trump said: “Iran has just informed us that they are in a ‘State of Collapse.’ They want us to ‘Open the Hormuz Strait,’ as soon as possible, as they try to figure out their leadership situation (Which I believe they will be able to do!).”

It was unclear from his post how Iran might have communicated that message and there was no immediate response from Tehran to Mr. Trump’s latest comments.

Earlier, an Iranian army spokesperson told state media the Islamic Republic did not consider the war over.

Iran has largely blocked all shipping apart from its own from the Gulf through the Strait of Hormuz, a chokepoint for global energy supplies, since the war began on Feb. 28. This month, the US began blockading Iranian ships.

The Wall Street Journal reported, citing US officials, that the president had instructed aides to prepare for an extended blockade of Iran’s ports.

Hopes of reviving peace efforts in a conflict that has killed thousands, thrown energy markets into turmoil and disrupted global trade routes have receded since Mr. Trump last weekend scrapped a visit by his special envoy Steve Witkoff and son-in-law Jared Kushner to mediator Pakistan.

Iranian Foreign Minister Abbas Araqchi shuttled in and out of Islamabad twice during the weekend.

With the warring sides still seemingly far apart, oil prices resumed their upward march, with Brent crude rising nearly 3% to around $111 a barrel.

The World Bank forecast energy prices would surge by 24% in 2026 to their highest level since Russia’s full-scale invasion of Ukraine four years ago, if the most acute disruptions caused by the Iran war end in May.

The United Arab Emirates said it was quitting OPEC and OPEC+, exposing discord among Gulf nations over Iran.

The Philippine central bank uses the TDF and BSP bills to mop up excess liquidity in the financial system and better guide market rates towards the policy rate.

The BSP last auctioned off both the seven-day and 14-day deposits on Oct. 29. It has not offered 28-day term deposits for over five years to give way to its weekly offerings of securities with the same tenor.

In its latest Monetary Policy Report, the central bank said it limited its TDF offerings to a single tenor to rationalize its liquidity operations and focus on tenors that would boost monetary policy transmission. As of mid-February, the BSP’s market operations have absorbed P1.2 trillion in excess liquidity from the market, with 9% of this being siphoned off via the TDF. — A.M.C. Sy with Reuters