Pardo hopes interest rates will hold steady

Finance Secretary Jose T. Pardo is hoping that interest rates, based on tomorrow's Treasury bill (T-bill) auction, will continue to hold steady even as concerns mounted over a rate hike increase due to another US Fed rate adjustment.

Pardo said he is still hopeful that investors would not bid up Monday's weekly T-bill auction. However, he is not prepared to order National Treasurer Leonor Briones to reject all high bids.

According to Pardo, rejecting all bids will have a cashflow implication and thus there may only be a "moderate rejection."

Bangko Sentral ng Pilipinas (BSP) Gov. Rafael B. Buenaventura had earlier admitted that another US Fed interest rate increase may exert an upward pressure on local interest rates.

US Federal Reserve Chairman Alan Greenspan had hinted of a possible adjustment to check inflation. Greenspan had noted that the 25 basis point rate hike was easily shrugged off by the US stock market.

Market analysts are, therefore, speculating on another hike of up to 50 basis points.

However, for the Philippines an increase in interest rates at this time would be bad for the economy which is still encountering some difficulty despite the government's effort to pump-prime it.

Based on the BSP's end-December 1999 bank lending data, the total loan portfolio of banks grew by a very minimal 0.5 indicating that there was very little demand for loans.

An increase in loan rates would probably wipe out the 0.5 growth last year. A negative loan growth would in turn worsen the banking sector's nom-performing loan ratio.

Last Monday, the market had already anticipated a rate hike and tried to bid up the 182-day and 364-day T-bill tenors. The 182-day and 364-day T-bills moved up slightly but the government auction committee headed by Briones had to reject some of the bids to moderate the increase in the yields of the long-term T-bills.

Government securities dealers said that in tomorrow's auction, there will be continued pressure for the 182-day and 364-day rates to rise.