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Philippines: Borrowing rates rising in May; BSP, US Fed turn hawkish
MANILA, Philippines — The Bureau of the Treasury will face heightened pressure from the debt market in May, and may end up giving in to increased rates just to fulfill its borrowing program.
The Treasury yesterday announced that it intends to borrow a total of P200 billion from local investors in May, similar to the financing volume it set out for April.
A bond trader told The STAR that the Treasury anticipates borrowing costs to go up in May due to the tightening measures adopted not only by the US Fed, but also by the Bangko Sentral ng Pilipinas (BSP).
The US Federal Open Market Committee will hold its policy meeting on May 3 and 4 in what investors expect will result in a hike of 50 basis points in interest rates. The Fed triggered a 25-bps increase in its March meeting and is projected to jack up rates by 150 bps more for the rest of the year.
By raising interest rates, the Fed wants to tighten monetary circulation within the US in an effort to dampen inflation. US inflation surged to 8.5 percent in March, the fastest in four decades, as energy costs ballooned due to Russia’s invasion of Ukraine.
On the domestic front, BSP Governor Benjamin Diokno said the Philippines may start pushing policy rates up as early as June, joining the international community in normalizing monetary programs after loosening them at the height of the pandemic.
However, Diokno said the Monetary Board would likely keep benchmark rates at record lows in its May meeting as part of a commitment to retain an accommodative stance in the first semester to support economic recovery.
In its March meeting, the BSP maintained the interest rate for the overnight reverse repurchase facility at an all-time low of two percent, but raised the alarm that policy actions may be required soon given that inflation is expected to hit 4.3 percent for the year.
“The Fed hikes will sustain its pressure on the yield movement in the debt market. Investors, as usual, will stay cautious with their purchases and will demand the Treasury for increased rates,” the trader said.
“Right now, investors are watching out for policy decisions to be made by the Fed, including the BSP. Any indication that the Fed will go beyond a 50 bps hike in May could mean trouble for the Treasury, as it will be difficult to raise the P200 billion program for the month with financing costs up,” the trader said.
For May, the Treasury will auction P60 billion in Treasury bills, with tenors of 91, 182 and 364 days, divided into P15 billion each week.
Likewise, the Treasury will sell P140 billion in Treasury bonds, with maturities of three, five, seven and 10 years, split up into P35 billion each week.
Source: https://www.philstar.com/business/2022/04/29/2177455/borrowing-rates-rising-may-bsp-us-fed-turn-hawkish