The average rate on the Bangko Sentral ng Pilipinas' (BSP) short-term securities continued to edge higher on Friday as market demand weakened.

Bids for the 28-day BSP bills (BSPB) totaled P32.29 billion, falling short of the P40 billion placed on the auction block and well below the P63.52 billion in tenders for the P30 billion auctioned off a week earlier. As a result, the bid-to-cover ratio fell to 0.8073 times from 2.1173 in the previous auction, meaning tenders failed to fully cover the offering for the first time in weeks. The central bank accepted only P31.19 billion of the submitted bids.

Accepted rates narrowed to a range of 4.9% to 5.1%, still higher than last week's 4.76% to 5.009% margin. The one-month securities' average accepted yield jumped by 10.51 basis points (bps) to 5.0271% from 4.922% in the prior week, keeping the bill's yield above the 5% policy rate.

"At the auction held on Sept. 4, 2026, the weighted average interest rate for the 28-day BSPB increased by 10.51 basis points week on week to 5.0271%, reflecting continued adjustment following the policy rate increase," the central bank said in a statement.

The BSP's policy-setting Monetary Board on Aug. 27 raised benchmark interest rates for the third straight meeting, a preemptive move to address continued price pressures as it expects inflation to peak in the fourth quarter due to rising global oil prices, strong El Niño conditions, and possible wage hikes. It raised the target reverse repurchase rate by 25 bps to 5%, an over one-year high, bringing cumulative increases since April to 75 bps.

BSP Governor Eli M. Remolona, Jr. said the central bank hopes it will not have to hike further, but left the door open to additional increases as needed to bring inflation closer to its 3% target.

Headline inflation averaged 5.2% as of August, well above the central bank's target but still below the 6.1% full-year forecast. The Monetary Board has two more policy reviews scheduled this year, on Oct. 22 and Dec. 17, which will signal whether further tightening — and consequently further upward pressure on short-term yields — is in store.

The central bank uses BSP securities and its term deposit facility to mop up excess liquidity in the financial system and to help guide short-term market yields toward its policy rate. Weaker demand at a BSP bill auction can therefore affect how effectively the facility absorbs liquidity, though yields — the facility's other lever — continued to move toward alignment with the policy rate. The BSP bills also contribute to improved price discovery for debt instruments while supporting monetary policy transmission.

The central bank began auctioning short-term securities weekly in 2020, initially offering only a 28-day tenor and adding a 56-day bill in 2023. It has since limited its BSP securities offerings to a single tenor to rationalize its liquidity operations and focus on tenors that would boost monetary policy transmission.

According to its June 2026 Monetary Policy Report, the central bank's open market operations have siphoned off P1.3 trillion in liquidity from the financial system. Of this, 19.2% was absorbed through BSP securities, 52.3% through the overnight reverse repurchase facility, 21.5% via the overnight deposit facility, and 6.9% from the term deposit facility. — Katherine K. Chan