Benchmark T-bill rate up

The rate for the bellwether 91-day Treasury bills (T-bill) went up to 6.595 percent at yesterday’s auction from the previous 6.539 percent as the Bureau of Treasury (BTr) decided to partially accept bids for government securities.

The rate for the 82-day T-bill was also up to 7.831 percent from 7.590 percent in the previous auction. However, the BTr rejected bids for the 365-day T-bill.

The BTr rejected in full the previous week’s bid applications as banks jacked up rates in anticipation of an increase in Bangko Senral ng Pilipinas’ (BSP) key policy rates.

Analysts said the week’s pause seemed to have cleared the market of speculations, prompting the BTr to allow interest rates on the benchmark T-bills to rise from 6.539 percent in the last auction to 6.595 percent.

National Treasurer Omar Cruz said the auction commitee decided to reject the bids for the 364-day notes because they were too high.

"The bids were really off the mark," Cruz said. "But that doesn’t matter. As long as we know there is liquidity in the market and we know we’re still okay in the one-year portion."

According to Cruz, the market was anticipating the move of the Monetary Board (MB) when it meets to discuss policy rates on Thursday this week.

"Hopefully, everything will be cleared up after the MB meeting," Cruz said.

The increase in the US federal interest rates was expected to finally push the BSP to take action for the first time since 2003 and adjust its own policy rates in anticipation of rising global and domestic inflation rates.

The Federal Open Market Committee (FOMC) followed its course of gradually increasing rates and raised the federal funds by 25 basis points to 2.75 percent. This is the seventh increase since the Fed began tightening credit in June 2004.

According to sources from the Monetary Board, the FOMC decision might finally push the Board towards adjusting its monetary policy by either increasing the policy rate or increasing the liquidity reserves of banks or adjusting both.

According to BSP Deputy Governor Amando M. Tetangco, the MB would still have to look exactly how prices have been behaving and whether there is an actual tendency to go up across the board.

Tetangco noted that the FOMC used a language that still referred to the "measured adjustment" in US interest rates while also acknowledging inflationary pressures in the US.

At present, Tetangco said the interest rate differential between the US and the country was between 210 and 215 basis points net of withholding tax on Philippine debt papers.

Tetangco admitted that considering the continued rise in oil prices combined with the impact of the FOMC decision on offshore interest rates, the MB would have to scrutinize if these factors would actually change its stance.