Low interest rates to remain – DOF

MANILA, Philippines – The Philippines could continue to enjoy low interest rates this year as strong economic performance offset a phenomenon kicked off by rising US rates, Finance Undersecretary Gil Beltran said.

“The reversal of US QE (quantitative easing) policies will push up the country’s real borrowing costs, but with improved fundamentals, the rise will be dampened,” Beltran said.

He mentioned this on his latest economic bulletin submitted to Finance Secretary Carlos Dominguez. A statement on the bulletin was released yesterday.

Interest rates are poised to rise globally after the US Federal Reserve adjusted upwards its interest rates in December last year.

That marked the second move in a decade of cheap credit meant to revive the world’s safe haven after the global financial crisis in 2008.

Normally, local rates follow the trend in the US, but Beltran claimed that primary nominal bond rates fell to 3.86 percent “ahead of the US expected rate increase.”

Based on Treasury data, however, weighted average interest rate of government debt inched up 4.98 percent in November from five consecutive months of decline.

Higher rates do not bode well for the government as this means allocating more funds for debt payments than public projects. For consumers and investors, this means higher interest in bank loans.

Beltran, nevertheless, said the country’s investment grade could also push interest rates lower. An investment grade credit rating meant the government has more than enough capacity to settle its debts.

“This was attained through fiscal strengthening with the passage of the VAT (value-added tax) reform law in 2006, debt management measures, prudent spending and appropriate monetary policy,” Beltran said.

“The financial markets (even) recognized the country’s investment grade status earlier than the CRAs (credit rating agencies) did,” he said.

Sought for comment, Astro del Castillo, managing director at First Grade Holdings Inc., agreed with Beltran, saying despite “some adjustments,” rates are likely to remain low.