YIELDS on the central bank’s term deposit facility (TDF) ended mixed on Wednesday as investors awaited the US Federal Reserve’s policy decision overnight.
The term deposits of the Bangko Sentral ng Pilipinas (BSP) fetched bids amounting to P213.935 billion on Wednesday, above the P200 billion on the auction block but lower than the P218.169 billion in tenders for the same offer volume a week ago.
Broken down, tenders for the one-week papers reached P134.256 billion, above the P120 billion auctioned off by the central bank and the P132.746 billion in bids for the P100-billion offering seen the previous week.
Banks asked for yields ranging from 6.2495% to 6.315%, narrower than the 6.23% to 6.3155% band seen a week ago. This caused the average rate of the one-week deposits to decline by 1.5 basis points (bps) to 6.2878% from 6.3028% a week earlier.
Meanwhile, bids for the 14-day term deposits amounted to P79.679 billion, lower than the P80-billion offering and the P85.423 billion in tenders for the P100 billion worth of papers placed on the auction block a week ago.
Accepted rates for the tenor were from 6.298% to 6.445%, slimmer than the 6.25% to 6.455% margin seen a week ago. With this, the average rate for the two-week deposits inched up by 0.51 bp to 6.3827% from 6.3776% logged in the prior auction.
The BSP has not auctioned off 28-day term deposits for nearly four years to give way to its weekly offerings of securities with the same tenor.
The term deposits and the 28-day bills are used by the BSP to mop up excess liquidity in the financial system and to better guide market rates.
TDF yields were mixed before the Fed’s policy announcement at the end of its Sept. 17-18 review, with the market divided about the size of the US central bank’s first rate cut in over four years, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The Federal Reserve on Wednesday almost certainly will lower interest rates for the first time in more than four years as the US central bank starts to reverse the restrictive conditions it imposed to beat back inflation, but whether policy makers opt for a half-percentage-point cut or smaller move remains up in the air, Reuters reported.
Their choice on how they want to kick off a new easing cycle — less than two months before what is expected to be a close US presidential election — likely hinges more on what signal they want to send as they pivot from the highest interest rates in a quarter of a century than about expectations for near-term macroeconomic impact, even as their worries about the job market grow.
A half-percentage-point cut — now given more than a 60% probability in rate futures markets — would signal a commitment to sustaining the current economic expansion and the job growth that goes along with it, something Fed Chair Jerome H. Powell has said is the top priority now that inflation is approaching the central bank’s 2% target.
A quarter-percentage-point reduction in borrowing costs would be more consistent with how the Fed has begun prior easing cycles outside of any brewing crisis. It would align with the cautious approach policy makers said they were taking towards rate cuts, and track economic data that has shown the economy slowing but not, seemingly, about to crack.
The Fed’s rate decision and new policy statement were scheduled to be released at 2 p.m. EDT (1800 GMT) along with updated economic projections that will show how much lower policy makers anticipate rates will fall over this year and in 2025. Officials will also update their outlooks for inflation, unemployment and economic growth.
The Fed’s benchmark policy rate has been held in the current 5.25%-5.5% range for 14 months. That is longer than three of the last-six Fed “hold” periods but is short of the 15 months that rates sat unchanged before the 2007-2009 financial crisis and even further shy of the 18-month pause during the “Great Moderation” of the late 1990s.
While the rate decision itself is critical, how Mr. Powell describes that choice and the outlook for borrowing costs during his post-meeting press conference may be more so. He is due to begin his remarks half an hour after the release of the policy statement and projections.
Inflation by the Fed’s most watched measure is now about a half a percentage point away from the central bank’s target, and expected to come down gradually through the rest of 2024 and next year.
The economy by almost all measures has fared better than expected through it all, with the Fed now expected to shift gears and offer its first clues on Wednesday about how fast and how far it plans to pivot. — Luisa Maria Jacinta C. Jocson with Reuters