P20B in T-bills sold as more cash expected through further rate, reserve cuts
The Bureau of the Treasury sold all P20 billion in T-bills on Monday (April 13) as the offering was met with strong demand due to expectations of further reduction in key interest rates and bank reserves.
While the rate for the P10 billion 91-day treasury bills rose to an average of 3.471 percent from 3.413 percent last week, National Treasurer Rosalia V. de Leon said it was “still within acceptable range.”
Also awarded were P5 billion each in 182- and 364-day T-bills as rates for both debt papers declined.
The six-month IOUs fetched 3.409 percent, down from 3.553 percent during the previous auction.
One-year treasury bills were sold at an annual rate of 3.685 percent, down from 3.845 percent previously.
De Leon attributed the robust demand for government securities to “strong liquidity onshore.”
She said investors anticipate another reserve requirement ratio cut and another policy rate cut as announced by Bangko Sentral ng Pilipinas Governor Benjamin Diokno.
On Sunday (March 12) Diokno said the BSP’s Monetary Board had allowed a reserve requirement cut of up to 400 basis points or an additional 200 bps cut to a previous 200 bps cut that took effect last March 30.
“The additional 200-bps cut is forthcoming based on available data, the needs of the economy, and the utilization of the additional liquidity,” Diokno had said.
Diokno also said that “a deeper cut” in policy rate was “warranted in response to the expected sharp economic slowdown” while inflation was expected to remain stable and within the 2-4 percent target for 2020.
Diokno said the policy rate may fall below 3 percent—where it was in 2018 before headline inflation hit nearly 10-year highs due to food supply bottlenecks, global oil prices and higher taxes on consumption that took effect in 2018.
Last month, the BSP reduced the policy rate by 50 bps—a move that the central bank itself described as “assertive”—to 3.25 percent.
Given strong demand and lower rates for the 182- and 364-day debt paper, De Leon said the Treasury opened its tap facility to sell another P5 billion each for both tenors, or maturity periods.
“We see market players now participating as liquidity gets additional infusion,” De Leon said.
But De Leon said that the share of domestic borrowings to 2020’s total would decline to 70-72 percent from 75 percent previously when foreign loans in being sought in response to the COVID-19 pandemic start to flow.
The Philippines plans to borrow up to P310 billion or $6.1 billion from multilateral lenders such as the Manila-based Asian Development Bank (ADB), the Beijing-based Asian Infrastructure Investment Bank (AIIB), and the Washington-based World Bank and others to aid vulnerable sectors, boost the health care system and keep the economy from drowning.