Government eyes $-linked notes to ease pressure on peso

Government is working on issuing dollar-linked peso notes in hopes of easing pressure on the local currency, the Bureau of Treasury (BTr) said yesterday.

The notes are fixed-rate government securities to be denominated in pesos with a dollar equivalent based on the foreign exchange rate on the issue date.

National Treasurer Sergio Edeza said the government would initially issue a total of about P5 billion worth of the instrument carrying two-and three-year maturities.

Edeza said the paper would carry coupon rates three to four percentage points lower than those of same-maturity Treasury bonds.

"The issuance will be able to help the government ease the pressure on foreign exchange market by issuing the dollar-linked instrument instead of selling dollars," Edeza said.

"Also, the government will be borrowing at rates favorable compared to the prevailing market rate," he added.

The instrument is one of the measures the government and the Bangko Sentral ng Pilipinas (BSP) agreed to pursue to ease the pressure off the local currency, which hit a six-month low of 54.335 to the dollar last week.

At the Philippine Dealing System (PDS), the peso closed 25 centavos lower at 53.400 from Friday’s close of 53.150 to the dollar. It opened slightly lower at 53.260 before hitting a low of 53.400:$1. Total volume traded was to $11 million.

The instrument also aims to reduce pressure on domestic interest rates, by partly providing financing for the government’s funding requirements which would otherwise be met by increased domestic borrowing.

Government has mandated three financial institutions, subject to the grant of presidential full powers and Monetary Board approval, to work on the issuance of the bonds.

The three are Rizal Commercial Banking Corp., Multinational Investment Bank Corp., and Deutsche Bank.

"The Monetary Board welcomes that and we will readily approve it," BSP Governor Rafael B. Buenaventura said regarding the government’s plan to issue the dollar-linked instrument.

"This is really an expression of the government’s desire to help the central bank address the peso’s temporary weakness," he added.

He said the bond is a hedging facility that will give investors access to dollars at prevailing US interest rates.