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BSP: Increase in domestic interest rates will be modest

MANILA — A ranking central bank official said modest increase in domestic interest rates is expected as the central bank mops up more excess liqudity from the system.

Photo courtesy of Yahoo (2016.mb.com.ph)

Photo courtesy of Yahoo (2016.mb.com.ph)

Results of the Bangko Sentral ng Pilipinas’ (BSP) Term Deposit Facility (TDF) auction on Wednesday showed that tenders for the seven-day facility remain high at PHP35.03 billion against the PHP10 billion offering.

Bid coverage ratio stood at 3.5033, lower than the 3.52 during the auction last week.

For the 28-day facility, the PHP100 billion offering recieved PHP196.91 billion bids resulting to a bid coverage ratio of 1.9691, which, on the other hand, is higher than last week’s 1.87 ratio.

The auction committee made full award for both tenors.

BSP Deputy Governor Diwa Gunigundo said the decrease in the bid coverage ratio for the shorter term facility is because of the volume of excess liqudity that the central bank continues to mop up.

“As we migrate overnight funds into the seven-day and 28-day placements, we see the beginning of a modestly upward path of interest rates for longer maturities,” he said, referring to the 2.55 percent net average accepted yield for the longer term TDF.

Gunigundo said the central bank’s key policy rate, which to date is at three percent, “continues to provide the guidance to market rates.”

“Considering that inflation rate is moving closer to the target and talks about the impending US Fed (Federal Reserve) normalization remain live, the trajectory even for interbank rates is indeed moving towards the policy rate,” he said.

“But overall, we should continue to see interest rates remaining broadly low and stable with modest upward drift, and inflation moving towards the midpoint of the target inflation range of two to four percent. Hence, one can see that indeed current monetary policy settings remain appropriate,” he added.