BSP to block attempts to hike interest rates

Treasury bill rates are forecast to either go sideways or take a plunge as government said it will not tolerate attempts by the market to test its resolve in keeping interest rates down in today’s auction.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura, who expressed exasperation over soaring interest rates despite the central bank’s efforts to bring down overnight rates, expects T-bill rates today to either be flat or fall.

"There is no reason for T-bill rates to further move up. At worst, the rates will remain flat," Buenaventura said.

On the other hand, Finance Secretary Jose Isidro Camacho and National Treasurer Sergio Edeza said the bellwether 91-day T-bill will not be allowed to hit double-digit levels.

"It would not be healthy for the economy if the 91-day rate hits more than 10 percent," Camacho said.

Edeza added that while the market had its way last week, the government will not be so accommodating this week.

Last week, T-bill rates went up for all tenors, with the 91-day T-bills inching up 11.5 basis points and setting at 9.915 percent, the highest since May this year.

The 182-day debt note was up by 12.5 basis points for the second consecutive week, hitting 12.179 percent from 12.054 percent last week.

And while the BTr last week rejected bids for the one-year debt instrument, it made a full award this week with rates up by 30.5 basis points, 13.02 percent from two weeks back.

The market last week cited apprehensions about the prospects on the economic front, with government’s widening budget deficit that reached P122.152 billion in September, exceeding the programmed target of P120.2 billion and raising the specter of a runaway deficit that could go beyond the projected year end deficit of P145 billion.

On the other hand, the country’s balance of payments (BOP) deficit in the first seven months reached $917 million. BOP accounts represents the country’s total financial transactions with the international community. It includes direct and portfolio investments as well as foreign trade goods in goods and services.

A weak BOP position erodes the country’s dollar reserves and points to a further depreciation of the peso.

Buenaventura said the market has been behaving irrationally, and he is wary of heeding calls to drastically cut its key overnight rates from the current 8.75 percent for borrowing and 11 percent for lending on fears of a sharp depreciation in the peso.

As it is, Buenaventura said current overnight rates are already low enough to encourage borrowing while keeping depositors’ and investors’ to park their money in the banks.

Camacho for his part said government is still confident it can keep the budget deficit target of P145 billion.