Gov’t to allow interest rates to move up

Government appears inclined to allow interest rates to move up slightly at next week's Treasury bill (T-bill) auction, it was learned yesterday.

The bellwether 91-day T-bill rate may keep rising, but it is unlikely to exceed six percent in the remaining two months of the year, Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said.

The government has allowed T-bill rates, including the 91-day rate, to rise at recent auctions in order to align the bellwether rate, in particular, with the central bank’s key overnight borrowing rate of 6.750 percent.

At the auction held Oct. 13, T-bill rates rose across the board, with the 91-day rate up at 5.629 percent from 5.506 percent previously.

Banks use the 91-day T-bill rate to price loans.

"Interest rates will stay low. At the most, it will hit six percent (by year-end)," Buenaventura told reporters.

"It won’t go over our policy rate, in the short-term at least."

National Treasurer Sergio Edeza had predicted that the 91-day might rise to seven percent on a possible build-up of uncertainties in the run-up to the May 2004 elections.

Buenaventura, however, said the level of liquidity in the market and the relative stability of the peso-dollar exchange rate will help temper the rise in the 91-day T-bill rate.

"I think the market will push it to six percent," Edeza told reporters.

He said market players would likely submit bids closer to the 6.75 percent overnight borrowing rate of the BSP.

The Bureau of Treasury (BTr) accepted an average rate of 5.629 percent for the paper at its latest auction on October 13.

Asked whether the BTr would allow the 91-day T-bill rate to move up, Edeza said: "We have to allow our rates to adjust."

"There has to be volume. We have to make our rates attractive to make the market buy our bills," he said. "But if the market overdoes it, we will reject."

The BTr sells T- bills and bonds to cover the government’s hefty budget shortfall.

Earlier, the government accepted a coupon rate of 11.375 percent for 20-year bonds compared with the previous coupon of 11.875 percent.

The Treasury said it accepted total tenders of P7.603 billion, more than twice the P3 billion worth of 20-year bonds it offered to sell.

Meanwhile, the Bureau of Treasury BTr said it raised P3 billion at yesterday’s auction of 20-year bonds, with total tenders reaching P7.603 billion.

The coupon rate was set at 11.375 percent.

To be able to raise an additional P1 billion, the BTr decided to open the tap facility window for 20-year bonds until 3 p.m. today, with yield to maturity at 11.354 percent.