ADB urges gov’ts to guard against risks from elevated rates

MANILA  -The Asian Development Bank (ADB) has urged governments and central banks in emerging East Asia—including the Philippines—to guard against potential financial risks associated with higher interest rates.

According to the September edition of the Asia Bond Monitor, interest rates in the region remain elevated and that higher borrowing costs have contributed to debt stress and bond defaults in some Asian markets over the past few months.

“Asia’s banking sector showed resilience during the recent banking turmoil in the US and Europe, but we’ve seen vulnerabilities and defaults among both public and private borrowers since last year,” said ADB chief economist Albert Park.

“Higher borrowing costs pose a challenge especially for borrowers with weak governance and balance sheets,” Park added.

In the Philippines on Monday, average yields on the government’s short-term borrowings remained below secondary-market levels albeit auction results were mixed.

The national government raised P15 billion as planned with the full-award of Treasury bills at the Sept. 11 auction.

The average rate on the benchmark 91-day Treasury bills (T-bills) increased by 2.3 basis points (bps) to 5.575 percent from 5.552 percent in the previous weekly auction.

Meanwhile, the average yield on the 182-day T-bills went down by 0.6 bps to 5.96 percent from 5.966 percent.

Also, the average rate on the 364-day T-bills decreased by 0.8 bps to 6.19 percent from 6.198 percent.

“The auction was 3.5 times oversubscribed, attracting P51.8 billion in total tenders,” the Bureau of the Treasury said in a statement.

The ADB noted in the report that local currency government bond yields in the Philippines increased for most tenors between June 1 and Aug. 31.During that three-month period, only the one-month and three-month tenors posted declines.

According to the report, the increase in yields was influenced by the Bangko Sentral ng Pilipinas’ hawkish tone amid persistent elevated inflation despite a continued decline since February.

The report added that an increase in yields was also influenced by dampened investor sentiment due to the economy’s slower-than-expected growth of 4.3 percent year-on-year in the second quarter of 2023, down from 6.4 percent y-o-y in the previous quarter.

—Ronnel W. Domingo INQ