Low T-bills due to low inflation – De Leon

MANILA, Philippines - The low Treasury bill (T-bill) rates regime is an offshoot of the prevailing low inflation environment and the high level of liquidity in the market, National Treasurer Rosalia de Leon said over the weekend.

De Leon said that while the decline in T-bill rates is good for the government as it translates to lower borrowing cost, the Treasury will keep a close watch on the T-bill behavior.

De Leon attributed the decline in the yields to the low inflation rate in October of 3.1 percent, down from 3.6 percent in September and the least in four months.

“It is based on their view of inflation. If they see inflation is within target, they would not jack up the (T-bill) rates,” De Leon said.

On Nov. 12, T-bill rates dropped to historic lows, indicating a surge in foreign inflows entering the Philippines, which could push the peso to appreciate further against the dollar.

Yields on T-bills fell to historic lows during the Nov. 12 auction, with the benchmark 91-day T-bill rate - used by banks in pricing their loans -- falling to 0.150 percent from 0.463 percent previously. The yield on the 182-day T-bill fell to 0.450 percent from the previous rate of 0.700 percent while the 364-day T-bill rate fell to 0.680 percent from a previous rate of 0.950 percent.

These were the lowest rates seen in the Treasury’s record that go as far back as 1987.

With the surge in fresh inflows to emerging markets like the Philippines, the Bangko Sentral ng Pilipinas (BSP) is expected to be more proactive and creative in managing these hefty funds.

Jose Arnulfo Veloso, incoming Hong Kong Shanghai Banking Corp. (HSBC) Philippines chief executive officer has said that there are a lot of measures that it can employ and may further require additional documentation of more inflows.

“There are a lot of measures that the BSP can do. They’ve already managed a lot. The BSP has got a lot of tools to be able to do it. It’s really up to the BSP. The BSP is in a better position to (discuss these measures). There may be further documentation of more inflows,” Veloso said.