Yields on fixed deposits continued to fall on Wednesday ahead of a dovish stance and an expected rate cut by the Bangko Sentral ng Pilipinas (BSP). By the US Federal Reserve.
The central bank's time deposit facility (TDF) attracted bids worth P142.886 billion, up from P130 billion on the auction block but lower than the P165.488 billion seen a week earlier for the same offer volume. BSP only accepted bids worth P128.126 billion because it partially offered a 14-day period, which was undersubscribed.
Broken down, tenders for seven-day papers reached P74.76 billion, higher than the P60 billion auctioned by the central bank and the P74.602 billion in bids recorded for the same offer volume last week. BSP earned the entire P60 billion prize of one-week fixed deposits.
Banks asked for yields ranging from 4.79% to 4.825%, lower than the 4.76% to 4.88% band seen a week ago. This brought the weighted average acceptance rate for one-week deposits down by 1.75 basis points (bps) to 4.8073% from 4.8248% last week.
Meanwhile, the bid amount for 14-day fixed deposits was P68.126 billion, lower than the P70-billion offer and P90.886 billion seen in tenders for the same amount auctioned last week. The central bank awarded all submitted bids.
The accepted rates ranged from 4.77% to 4.87%, lower than the 4.75% to 4.875% margin of the previous auction. With this, the average rate for two-week papers declined by 1.34 bps to 4.8216% from 4.835% earlier.
BSP has not auctioned 28-day fixed deposits for more than five years as part of its weekly offering of similar tenor securities.
Both TDF and BSP bills are used by the central bank to liquidate excess liquidity in the financial system and better guide market rates towards the policy rate.
Rizal Commercial Banking Corp. chief economist Michael L. “As seen in recent weeks, the average auction yields of BSP TDFs have again declined slightly, mainly due to the impact of the surprise 25-bp BSP rate cut on October 9,” Ricafort said in a Viber message. He said the rates have also fallen due to soft signals from policy makers.
The Monetary Board cut the benchmark borrowing cost by 25 bps for the fourth consecutive meeting this month, taking the policy rate to 4.75%.
Rates have now been cut by 175 bps since the start of its easing cycle in August 2024.
BSP Governor Eli M. Remolona, Jr. has said more cuts are possible next year as he seeks to support the economy amid weak growth prospects as a corruption scandal involving flood control and infrastructure projects in the state has damaged investor confidence.
On Monday, Monetary Board member Benjamin E. Diokno said in a Bloomberg Television interview that a 25-bp cut was likely at their Dec. 11 meeting, with further cuts possible as the economic fallout from the corruption scandal could last until late 2026.
Mr. Ricafort said TDF yields also declined on expectations of a second consecutive overnight rate cut by the Fed.
“Most dovish signals from the FedF“Recent IIsals will help support potential Fed rate cuts in the future that could be matched by the BSP to maintain a healthy interest rate differential,” he said.
“The series of BSP rate cuts in recent months and potential BSP and Fed rate cuts in the coming months have led more investors to lock in yields ahead of the decline.”
The Federal Reserve was expected to cut interest rates by a quarter percentage point on Wednesday as policymakers navigate the US economy based on limited data, despite concerns about the strength of the job market remaining on top, Reuters reports.
Economists surveyed by Reuters were almost unanimous that the US central bank will cut its benchmark policy rate to a range of 3.75%-4% at the conclusion of its latest two-day meeting.
But this is a decision based at least partly on inertia, rather than on a firm basis in the data Fed officials use in setting monetary policy.
The federal government shutdown means the US central bank didn't get the benefit.FThe preliminary employment report, covering the month of September, is an important input for its policy discussion.FPresident Donald J. Under Trump's tough immigration policies, the staff is focused on hiring strength and developing the labor force.
By August, the last month for which the Bureau of Labor Statistics published a jobs report before the shutdown began on Oct. 1, the unemployment rate was slowly rising, up from 4% in January, when Mr. Trump began his second term in the White House, to 4.3%.
But the pace of hiring had fallen dramatically, helped by a decline in the number of foreign-born people looking for work, which otherwise would have led to a much larger increase in the unemployment rate.
While Fed officials believe the job market is roughly balanced between the demand and supply of workers, they were also concerned that businesses could begin to cut back on hiring even further or resort to layoffs given concerns about underlying economic growth — a risk highlighted by both recent layoff announcements at Amazon.com and a surge in state unemployment claims. State employment agencies are still collecting and publishing weekly data on applications for unemployment benefits, providing a barometer for the health of the labor market.
A final report on inflation in September, released last week at the behest of the White House as it was included in calculations of Social Security benefit increases, showed the consumer price index rose slower than expected last month as slower housing inflation was offset by increases in the cost of gas and imported goods now subject to tariffs.
The combination of comparatively positive inflation news and ongoing job market concerns means there is “not much basis for a change of mind” since policymakers in September signaled that quarter-percentage-point rate cuts were likely at their October 28-29 and December 9-10 meetings, wrote Steven Englander, head of North America macro strategy at Standard Chartered.
If there is an agreement to reopen the government soon, the Fed will have about six weeks to come up with any catch-up data before its final meeting of the year. , Katherine K. chan with reuters
