Investors rush to short-term IOUs amid rate cut prognosis

The Bureau of the Treasury sold all P20 billion in T-bills on Monday as the offering was met with strong demand due to expectations of a further reduction in key interest rates and bank reserves up ahead.

While the rate for the P10 billion in 91-day Treasury bills rose to an average of 3.471 percent from 3.413 percent last week, National Treasurer Rosalia de Leon said it was “still within acceptable range.”

The government also awarded P5-billion offers for each of the 182- and 364-day IOUs as rates 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 with maturity of P120 billion today, and in anticipation of another RRR (reserve requirement ratio) cut as announced by [Bangko Sentral ng Pilipinas Governor Benjamin Diokno].”

“Investors [are] also now pricing in another policy rate cut as [what the governor] has likewise conveyed,” De Leon added.

Diokno said on Sunday the policy-setting Monetary Board had authorized an RRR cut of up to 400 basis points (bps). Following the first 200-bp reduction that took effect on March 30, “the additional 200-bp cut is forthcoming based on available data, the needs of the economy and the utilization of the additional liquidity.”He said “a deeper cut” in the policy rate was also “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 could fall below 3 percent—where it was in 2018 before headline inflation hit nearly a 10-year high due to food supply bottlenecks, elevated global oil prices and higher excise on consumption.

Last month, the BSP reduced the policy rate by 50 bps to 3.25 percent. INQ