The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), tightened yesterday its monetary policy for the first time in four months to preempt any impact of a likely hike in US interest rates.
At its weekly meeting, the Monetary Board effectively raised its overnight borrowing rate by discontinuing a previous two-tier system and offering a flat rate of 8.75 percent for all funds lent to the BSP.
Previously, it had paid a lower rate of eight percent on half of all funds in excess of P500 million.
BSP Gov. Rafael B. Buenaventura admitted that the move is "a signal that our borrowing rate has gone up slightly."
He said the move was in response to expectations of an increase in US interest rates at the Federal Reserve's Open Market Committee meeting on March 21.
"Given the expected move in the US, we figured it's time to make some minor adjustments," he said.
Analysts said dropping the second tier of the overnight borrowing rate rather than increasing the overall rate was a deft way of tightening policy while keeping interest rates as low as possible amid the prospect of higher US rates.
Despite the tightening in policy, monetary and finance officials said they do not expect interest rates to spike higher.
Finance Secretary Jose T. Pardo said Treasury bill yields at Monday's securities auction should move sideways given the government's comfortable cash position.
Pardo said "the government continues to have a healthy cash position and can therefore afford to reject high bid rates."
He explained that the government is not in the same situation as it was in last year wherein the continuous rejection resulted in the bunching up of some maturities.
At last Monday's auction, the benchmark 91-day T-bills yielded 8.897 percent, up from 8.847 percent a week ago.
Neither Buenaventura nor Pardo linked the effective rise in the overnight borrowing rate -- the BSP's main tool to control liquidity--to the weak peso.
The peso had been testing the psychological barrier of 41 to the dollar for most of this week, pressured by adverse regional currency movements and a highly publicized stock market scandal.
Meanwhile, the BSP announced the peso rediscount and exporters' dollar and yen rediscount facility rates applicable on loan availment for the month of March.
For the peso, the rediscount rate is 7.847 percent, while for the dollar, the rediscount rate is 5.7875 percent and for the yen, the rediscount rate is 0.0975 percent.
The BSP said that under the peso rediscounting, total availments of commercial, thrift and rural banks from Jan. 2 to Feb. 28 amounted to P1.024 billion. Of this amount, P587 million or 57.3 percent went to export financing, P371 million or 36.2 percent went to agricultural credits and P67 million or 6.5 percent went to commercial and industrial credits. -- By Marianne V. Go