Local banks continued to demand higher yields in return for parking their idle cash in the central bank’s vaults amid expectations that higher inflation in the coming months may prompt the monetary authority to hike interest rates further.
During Wednesday’s term deposit facility auction, financial institutions continued to push interest rates higher, continuing a trend that began after the Bangko Sentral ng Pilipinas implemented a 50-basis point rate hike earlier this month—its most aggressive tightening move in a decade.
The yield on the seven-day term deposit facility rose to 4.2069 percent from the previous week’s 4.1759 percent. Banks tendered P42.1 billion worth of bids for the P40 billion that was on offer, with the central bank making a full award of P40 billion.
“After the central bank governor’s recent comments on inflation, banks are thinking that this round of tightening may not be over yet,” said one bank treasurer about the uptrend in rates of the facility used by authorities to mop up excess liquidity from their local financial system.
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Last week, BSP Governor Nestor Espenilla Jr. said the central bank’s economists were expecting the country’s inflation rate to peak in either August or September, before going into a downtrend and normalizing by early 2019.
The country’s July inflation rate surprised both private sector analysts and government economic managers by combing in at 5.7 percent—a new peak, and the fastest pace of increases in the prices of consumer goods and services in at least five years.
