Benchmark T-bill rate nears all-time low

Interest rates plunged to new lows in yesterday’s T-bill auction with the yield for the benchmark 91-day Treasury bill (T-bill) settling at 6.911 percent, close to its all-time low recorded 15 years ago.

The 91-day rate, which banks use as reference in pricing their loans, was down for the ninth consecutive week and close to hitting the all-time low of 6.886 percent recorded on Feb. 4, 1987.

However, the rate for the 182-day T-bill plunged by more than 15 basis points to hit an all-time low of 7.288 percent as demand swelled to P5.875 billion.

Deputy National Treasurer Eduardo Mendiola said that while rates should stabilize or flatten at these levels, there is still room for further downward adjustments next week.

Mendiola cited the same factors for the continued sliding of interest rates.

"The foreign exchange rate is stable with the peso appreciating as new inflows are expected from the proceeds of the sale of San Miguel to Kirin among others, the stock market is up, we have good inflation numbers, the fundamentals have not changed much and there is still ample liquidity in the market," he said.

Mendiola said that if the year-round inflation level is kept at five percent, the rate for the 91-day T-bill can even go down to 6.5 percent.

"At that rate, people will still have real interest rate differential of 1.5 percent," Mendiola added.

Money market traders said the market is generally satisfied with the prevailing interest rate level, but added the declines should bottom out soon because anything lower would prove unattractive.

"Yes, it would be advantageous to the government, but this will not be good for the banks whose spreads will be reduced," one trader from a foreign commercial bank said.

Another trader said, however, that rates could still go down in anticipation of the possibility the Bangko Sentral ng Pilipinas (BSP) will cut its overnight rates if the US Federal Reserve Board eases its own key policy rates this month.