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T-bill rates further down following interest rate, RRR cuts

By: - Reporter / @bendeveraINQ
/ 04:04 PM May 20, 2019

MANILA, Philippines — T-bill rates further fell across the board amid strong demand from investors following a cut in big banks’ reserve requirements last week, allowing the Bureau of the Treasury to sell all P15 billion it offered Monday.

The Treasury awarded P4 billion in the benchmark 91-day IOUs at an average rate of 5.258 percent, down from 5.389 percent last week.

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It also sold P5 billion in 182-day treasury bills at 5.7 percent, down from 5.768 percent previously.

Also fully awarded were P6 billion in 364-day T-bills at an annual rate of 5.869 percent, down from 5.936 percent a week ago.

The yields were also below secondary market levels, the Treasury said in a statement.

“As expected, with the 200-basis point reduction in the [reserve requirement ratio or RRR], you unleash more liquidity coupled with the previous policy cuts. So we really expect rates to be going down significantly,” National Treasurer Rosalia V. de Leon told reporters after the auction.

The RRR cut to 16 percent from 18 percent at present will be implemented by the Bangko Sentral ng Pilipinas (BSP) in three stages – an initial 100 bps on May 31, followed by 50 bps each on June 28 and July 26.

The reduction in universal and commercial banks’ RRR came a week after the BSP’s policy-making Monetary Board cut the policy rate by 25 bps to 4.5 percent amid easing inflation.

“We also saw strong participation in the auction—three to four times oversubscription than what we have offered given that liquidity is very abundant,” De Leon added.

Tenders across the three tenors totaled P50.3 billion.

Meanwhile, De Leon said the Treasury would still push through with the issuance of about $500-750 million in yen-denominated samurai bonds across three tenors during the second half even as Finance Secretary Carlos G. Dominguez last week said the government would review borrowing plans in light of underspending at the start of the year due to delayed budget implementation.

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“It’s not just the spending; even the revenues we will have to look at,” De Leon said.

With the P3.7-trillion 2019 national budget approved in mid-April, De Leon said they will look if underspending was already reversed this month.

As such, “we will have to calibrate our borrowings and also the way we see the progression of spending on the fiscal position, particularly if we see that there is a reversal in the spending this May, then, of course, if there’s continuous improvement in revenue collection,” she said.

Last Friday, Dominguez told reporters that even as the sale of euro and renminbi-denominated panda bonds this month were successful, they will first check if the planned samurai bond sale in the third quarter remains feasible given ample unspent cash.

“I have to talk to [de Leon] because our expenditures really went down. Our [budget] deficit went down to 2.1 percent” of gross domestic product (GDP) in the first quarter, Dominguez said.

The end-March budget deficit narrowed from the gap equivalent to 3.9 percent of GDP a year ago. The government targets a wider fiscal deficit ceiling of 3.2 percent of GDP this year as it wanted to ramp up spending on public goods and services, especially infrastructure.

Also, “if we find out that we can cover everything from the domestic market we’d much rather do that,” Dominguez said, citing that the BSP’s move to reduce banks’ reserve requirements in three tranches will release about P190 billion in funds to the market.

While end-March expenditures inched up to P778 billion from P772 billion last year, the delayed implementation of this year’s P3.7-trillion budget already took its toll on the economy.

“The delay in the passage by Congress of the 2019 budget weakened expenditures and the domestic economy. National government underspending was estimated at P69.5 billion using the difference between the full-year expenditure program of 9.8-percent [growth] and the actual first-quarter expenditure growth of 0.8 percent,” Department of Finance (DOF) Undersecretary and chief economist Gil S. Beltran said in an economic bulletin last week.

As such, GDP growth fell to a four-year low of 5.6 percent in the first quarter mainly due to slower public investments, especially on infrastructure, as a result of the budget impasse.

However, Dominguez cautioned against fast-tracking the rollout of projects for the sake of making up for the underspending during the first four and a half months of the year.

“That ‘catch up’ is a myth because people who had not been in operations don’t realize that when you try to catch up, it costs you more—you pay overtime, so the same road you’re going to build, it costs more. And when you’re rushing you will make more mistakes… It’s better to do it in a deliberate way,” Dominguez said.

As such, Dominguez said he will again meet with the interagency Economic Development Cluster (EDC) this week as a follow through to last week’s meeting in order to check if this year’s physical targets remain achievable.

Asked if he was conceding that underspending could persist for the rest of the year, Dominguez replied: “We are not conceding that yet. We are just saying, ‘what is needed?’, and I have to talk to the DOTr [Department of Transportation] and the DPWH [Department of Public Works and Highways] and see if they can do it [implement projects].”

“Don’t do it foolishly just for the sake of spending. You have to do it in a rational way, and that won’t cost us more,” the Finance chief said.

During last week’s EDC meeting, Dominguez said he “wasn’t satisfied” as implementing agencies claimed they can push through with projects but were unable to detail how.

“It’s not clear—they say ‘we can do it’, but I want to see how. What are the physical targets?” he said.

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