Slight increase in interest rates seen

Interest rates are expected to soon rise in the wake of the worse-than-expected growth in domestic output during the third quarter.

First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in a joint research that short-term securities will continue to be volatile as bids in the primary market are noncompetitive.

“Because of this, market corrections and consolidation are much needed,” the paper said.

In this year’s last Treasury bill auction held last week, the yield on the 91-day T-bill rose by 58.7 basis points to an average of 1.556 percent as investors continued to show their preference for long-term government securities.

As for long-term debt paper, they said rates will continue to show insignificant changes but “with a slight downward bias.”

“As inflation remains benign in the country, market sentiment is now tied to the prime indicator of the Philippine economy: GDP [gross domestic product] growth,” FMIC and UA&P said.

The National Statistical Coordination Board last month reported that GDP in the third quarter grew by 3.2 percent, bringing the average growth rate for January-September to 3.6 percent.

Also, the National Statistics Office said the increase in consumer prices settled at 4.8 percent in November, with many observers saying inflation peaked at 5.2 percent the previous month.

“We, however, maintain our view of status quo in policy rates at least until the end of the year,” the paper added.

The Bangko Sentral ng Pilipinas (BSP) has maintained its policy rates at 4.5 percent for overnight borrowing and 6.5 percent for overnight lending.

The BSP has signaled it may cut policy rates in the first quarter of 2012 in the wake of expectations that a prolonged crisis in the eurozone would dampen growth prospects for emerging economies like the Philippines.

BSP Governor Amando Tetangco Jr. had said that since inflation would likely remain benign in 2012, the central bank would have the flexibility to respond to the impact of the crisis in the West on the Philippines through a cut in its policy rates.

Tetangco said a pickup in demand for goods and services, as a result of lower interest rates, would not likely cause inflation to go beyond targeted levels because it has so far been very manageable.