By Lee C. Chipongian

Banks opted to hold back on their bids during yesterday’s term deposit facility (TDF) auction while yields continue to climb ahead of this week’s Monetary Board (MB) policy meeting next week.

The Bangko Sentral ng Pilipinas (BSP) cut back its offerings to P90 billion this week or P10 billion less than its November 7 volume, but banks only took P65.63 billion in a bidding.

All tenors were undersubscribed but average rates were still up.

The 7 days attracted only P35.41- billion tenders versus offer of P50 billion, and the bids were also lower than P50.17 billion last Wednesday. Average rate continue to increase to 4.8291 percent from the previous week’s 4.7442 percent.

The 14-day TDF, offered lower this week at P20 billion, had bids of P19.32 billion, also less than last week’s P29.56 billion. Yields went up to 4.8642 percent from 4.7890 percent.

The 28 days, still at P20-billion auction size, received half of that or P10.89 billion. This was lower compared to November 7’s tendered amount of P16.17 billion. Interest rate increased to 4.9162 percent from 4.9010 percent.

The weekly TDF auction reflected the increase in BSP’s policy rates in recent weeks.

The central bank benchmark rates were hiked by a combined 150 basis points since May this year to curb high inflation and temper exchange rate volatility which have started to impact on the consumer price index.

ING Bank’s Manila-based senior economist, Nicholas Mapa, said the market seems divided on what the BSP will do in today’s (Thursday) policy meeting. He cited market consensus that said there are more analysts betting on the BSP raising rates anew.

The BSP will be looking at two important data today, the 6.7 percent October inflation which was similar with September’s, and the 6.1 percent GDP growth in the third quarter that was lower than the previous quarter’s 6.2 percent and same time in 2017 of 7.2 percent.

Mapa said it is alarming that food consumption, which is 23 percent of GDP, went up by only 2.8 percent which was the lowest growth rate since the third quarter 2010. With a still elevated inflation and higher borrowing costs, he said they now expect GDP to slow down further to six percent in the last quarter of 2018.

Still, with October’s steady inflation, the analyst said risks to the inflation outlook remain but are seen to be moderating.

Mapa echoed the BSP sentiments on this. The risks to inflation are still oil price shocks and bad weather which could still come, as well as rising US interest rates and peso weakness.

On the one hand, he said the BSP could decide to pause today since with both monetary and non-monetary measures working to pull back inflation in 2019 back to within the target of two-four percent, the “need to anchor inflation expectations takes a backseat.”

“If the BSP chooses to hike rates to assure its inflation path, it could run the risk of sapping even more momentum from economic growth,” said Mapa. “This decision would champion price stability but run the risk of seeing its sterling growth print fade very quickly. Meanwhile, a decision to pause to help ensure economic growth could expose the BSP to moderating price pressures to threaten its price stability objective.”