Term deposit yields decline on oil prices, reserve requirement ratio cut

YIELDS on the central bank’s term deposits fell on Friday amid volatile global oil prices due to ongoing geopolitical tensions in the Middle East and as the cut in lenders’ reserve ratios took effect, releasing liquidity into the financial system.

The term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) fetched bids amounting to P286.874 billion on Friday, well above the P170-billion offering as well as the P191.794 billion tenders for a P190-billion offer seen a week ago.

Last week’s TDF auction was rescheduled to Friday from Wednesday amid the suspension of work in government offices due to the typhoon. The tenors of the term deposits auctioned off were also adjusted accordingly.

Broken down, tenders for the five-day papers reached P169.976 billion on Friday, higher than the P90 billion auctioned off by the central bank and the P98.069 billion in bids fetched for the P100-billion offering of seven-day term deposits the previous week.

Banks asked for yields ranging from 5.99% to 6.14%, lower than the 6.2355% to 6.28% band seen a week earlier. This caused the average rate of the five-day deposits to drop by 17.06 basis points (bps) to 6.0936% from 6.2642% previously.

Meanwhile, bids for the 12-day term deposits amounted to P116.898 billion on Friday, above the P80-billion offering and the P93.725 billion in tenders for the P90 billion in 14-day papers auctioned off on Oct. 16.

Accepted rates for the tenor were from 5.998% to 6.2%, below the 6.19% to 6.35% margin seen a week ago. With this, the average rate for the 12-day deposits fell by 16.45 bps to 6.1374% from 6.3019% logged in the prior auction.

The central bank has not auctioned off 28-day term deposits for more than four years to give way to its weekly offerings of securities with the same tenor.

The term deposits and the BSP bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates.

Term deposit yields went down on Friday as global oil prices recently reached three-week lows amid easing geopolitical tensions in the Middle East, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Oil prices eased about 1% in volatile trade on Thursday on reports the US and Israel will try to restart talks on a possible ceasefire in Gaza, Reuters reported.

Brent futures settled 58 cents, or 0.8%, lower at $74.38 a barrel, while US West Texas Intermediate crude (WTI) slipped 58 cents, or 0.8%, to end at $70.19.

Earlier in the session, both benchmarks traded up over $1 a barrel on concerns the ongoing conflict in the Middle East could result in oil supply disruptions and from uncertainty ahead of the US presidential election on Nov. 5.

After Iran fired missiles at Israel on Oct. 1, Brent crude surged about 8% during the week ended Oct. 4 on worries Israel would attack Iran’s oil infrastructure. It fell about 8% in the week ended Oct. 18 on reports Israel would not hit energy infrastructure, easing fears of supply disruptions.

However, oil prices settled higher on Friday and gained 4% on the week, with investors taking stock of the ongoing conflict in the Middle East as well as the US election next month.

Brent settled 4% up on the week, while WTI settled 3.7% higher on the week.

The recent reserve requirement ratio (RRR) cut, which took effect on Friday (Oct. 25), also affected TDF yield movements as the cash released into the financial system because of the reduction could go into the central bank’s monetary instruments, Mr. Ricafort added.

“Banks will have the flexibility to increase loans, investments in bonds and other fixed-income securities, equities, as well as other investments,” he said.

“There would also be more pesos that could be used to buy US dollars and other foreign currencies, though the excess pesos could be siphoned off through higher interest rates offered by the BSP TDF, in view of larger bids (on Friday) to reflect the RRR cut that increased banks’ peso liquidity.”

Effective on Friday, the BSP reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%.

It also cut the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders was brought down by 100 bps to 1%. Rural and cooperative banks’ reserve requirement was slashed by 100 bps to 0%. — Luisa Maria Jacinta C. Jocson with Reuters