Gov't borrowing costs likely to stay low despite Fed hike

MANILA, Philippines - Despite a hike in US interest rates on Thursday, government borrowing costs could still trend lower, thanks to the country's sound fundamentals.

"Today's US Federal Reserve decision raising rates after almost a decade of near-zero rates is necessary to prevent mispricing of risks and assets. It has also been widely expected," Finance Secretary Cesar Purisima said in a statement.

"As we have long watched this development closely, today's liftoff will not change our financing plans... I believe our borrowing costs will continue to narrow because of positive investor sentiment on the back of good fundamentals," he added.

For the first time since 2006, the US Fed pushed up rates by 25 basis points from their near-zero levels as expected.

Nine years of low rates have benefited the government through flooring debt interest. For instance, the benchmark 91-day Treasury bill hit a record low of 0.001 percent in October 2013.

Treasury bills and bonds are instruments used by the government to borrow money from investors.

Aside from the bond market, Purisima said the stock and foreign exchange segments will likely suffer from "knee-jerk reactions" from the Fed hike, but added these will not last.

As of 11:04 a.m., the Philippine Stock Exchange index added 128.08 points or 1.88 percent to 6,935.80 as investors already priced in the hike.

The peso, meanwhile, opened flat against the dollar at 47.28.

"We are confident our economy is resilient from increased rates," Purisima said.

"Moving forward, we will closely watch the pace of tightening alongside other developments in the volatile landscape of the global economy," he added.