Rise in market rates seen

MANILA, Philippines - The Bangko Sentral ng Pilipinas said market rates could start rising in the coming months as the government accelerates spending.

“There may be some stickiness in interest rates, however, because there continues to be ample liquidity. As the NG (national government) ramps up public spending in the coming months, we should see further upward, gradual adjustments in market rates,” BSP Governor Amando M. Tetangco said in an e-mail.

M3 – the broadest measure of liquidity – expanded by 16.2 percent to P7.204 trillion in September. The growth rate was a deceleration from the 18.3 percent growth recorded in August.

Average yields for long-term government papers fell earlier this week due to expectations of further deceleration in inflation. The rate on the 182-day Treasury bills slid to 1.654 percent from 1.676 percent during the previous auction, while the yield on the 364-day T-bill rate went down to 1.768 percent from 1.87 percent.

However, the yield on the 91-day T-bill rate climbed to 1.298 percent from 1.14 percent.

“The recent BSP moves are yielding the initial results as we had expected, including the slow down in the rate of M3 growth down from upwards of 30 percent to the high teens and the gradual upward adjustment in interest rates in line with expectations for policy normalization in US monetary policy,” Tetangco said.

M3 growth reached 30 percent in July last year and remained above that level for 10 months after the central bank reduced the SDA rate by 150 basis points in early 2013 and restricted deposits of investment management accounts (IMA) or the singular fund accounts offered usually to retail investors in the facility.

To rein in excess liquidity in the market, the BSP decided to raise the banks’ reserve requirement ratios by 200 basis points and the SDA rate by 25 basis points earlier this year.

“Part of the slowdown in the M3 growth is also base effects at work, and as some of the funds from the IMA migration have plowed back to the BSP,” Tetangco said.

BSP data showed money supply continued to increase in September amid sustained demand for loans, which in turn supports domestic economic growth.

“Credit growth has remained stable, which is still desirable at this time as it reflects good absorptive capacity in the system. Banks are continuing to lend to key productive sectors such as manufacturing, utilities and wholesale-retail trade,” Tetangco said.

“With the expanding absorption of funds by borrower households and corporates, we should be seeing relatively sustained robust credit growth going forward. In turn, that should then give the NG a better chance to meet its growth targets in the coming years,” he added.