Short-term borrowing costs for the government fell across the board this week, with market players confident that even the trimmed premiums would be enough to beat inflation.
Results of the Bureau of the Treasury’s auction on Monday showed that banks were willing to bring down interest rates for short-term loans to the government. Rates for three-month, six-month and one-year bills declined. All tenors were oversubscribed.
“We were pleasantly surprised that volumes have increased to this level. I guess the market is more confident,” Treasurer Roberto Tan told journalists after the auction. “We have to monitor the trend.”
On Monday, the government was able to issue P20 billion worth of short-term debt securities at lower costs. The average rate for the P8 billion in 91-day bills declined to 1.999 percent from 2.078 percent during the previous auction.
Yields for six-month and one-year securities were down 14.7 basis points and 24.6 basis points, respectively. The government said full awards of P6 billion each for both tenors were given yesterday.
Tan said the take-up for the one-year bills—the first full award for the year—showed market players were more “confident” in the domestic economy’s prospects and the Philippine government’s creditworthiness.
This comes despite the impending threat of the US Federal Reserve’s interest rate increase by September or December this year. Treasury bills and their longer-term counterparts known as treasury bonds are used by banks as benchmarks when pricing loans for households and local businesses.
“It’s a good sign,” Tan said, adding: “Otherwise, they would be demanding higher rates. Fundamentally, the macroeconomic environment in the country has been positive even as of late.”
The official cited the government’s latest inflation report and recent official and private sector forecasts showing consumer prices likely stabilized further in the third quarter of the year.
Consumer price inflation in July is expected to average between 0.5 and 1.3 percent, central bank projections showed. Banks polled by the Inquirer last week said inflation below 2 percent was all but certain. This followed June’s record low of 1.2 percent.