Yields on seven-day deposits drop further after Fed, BSP cuts

YIELD on the Bangko Sentral ng Pilipinas’ (BSP) seven-day term deposits fell on Wednesday as the offer was met with strong demand following cuts to benchmark rates here and in the United States.

The central bank’s term deposit facility (TDF) attracted bids amounting to P171.256 billion, more than double the P80 billion auctioned off and above the P156.981 billion in tenders for the same offer volume last week.

The one-week deposits had a bid-to-cover ratio of 2.1407 times, higher than the 1.9623 times seen for last week’s offer. The BSP made a full award of the seven-day papers.

Accepted yields were from 4.4515% to 4.55%, a narrower and lower range compared to the 4.52% to 4.724% recorded in the previous auction. With this, the average rate of the one-week deposits went down by 15.08 basis points (bps) to 4.529% from 4.6798%.

The BSP has not offered the 14-day papers for nearly two months. It last offered both the seven-day and 14-day papers on Oct. 29.

Also, it has not auctioned off 28-day term deposits for over 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 better guide market rates towards the policy rate.

The seven-day deposits fetched a lower average accepted yield week on week following the widely expected rate cuts from the US Federal Reserve and the BSP, Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said in a Viber message.

Fed officials last week cut the US central bank’s benchmark overnight interest rate by another 25 bps to the 3.5%-3.75% range. However, they signaled borrowing costs were unlikely to fall further in the near term as they awaited clarity on the direction of the labor market and inflation, Reuters reported.

Fed Chair Jerome H. Powell told reporters in a post-meeting press conference that the labor market “seems to have significant downside risks.”

US job growth rebounded more than expected in November after government-related spending cuts triggered the biggest drop in nonfarm payrolls in nearly five years in October, suggesting no material deterioration in labor market conditions as businesses navigate economic uncertainty wrought by President Donald J. Trump’s aggressive trade policy.

While the Labor department’s closely watched employment report on Tuesday showed the unemployment rate at more than a four-year high of 4.6% last month, the Bureau of Labor Statistics changed its methodology after the 43-day government shutdown prevented the collection of data from households.

Economists said they were focusing on private job growth to get a better sense of the labor market’s health. Private employment growth has averaged 75,000 jobs per month over the past three months, which some economists said should allow the Federal Reserve to keep interest rates unchanged in January.

Nonfarm payrolls increased by 64,000 jobs last month. The economy shed 105,000 jobs in October, the biggest decline since December 2020. That slide was tied to a decrease of 162,000 jobs in federal government employment, the most since June 2010.

Meanwhile, the BSP on Dec. 11 delivered a fifth straight 25-bp cut to bring the policy rate to an over three-year low of 4.5%. It has so far slashed benchmark rates by 200 bps since August 2024.

BSP Governor Eli M. Remolona, Jr. said they could lower borrowing costs by another 25 bps one last time next year depending on economic data, which would likely mark the end of the current easing cycle. The Monetary Board will hold its first meeting next year in February. — Katherine K. Chan with Reuters