RCBC chief economist Michael Ricafort. (File photo)
MANILA – An economist is optimistic that the government will have greater leeway to fund economic recovery programs after successfully selling USD2.75-billion (around PHP132 billion) worth of 10.5-year and 25-year US dollar-denominated bonds on Thursday.
Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the government now has more available funds for infrastructure program, as well as intervention programs aimed at addressing the impact of the coronavirus disease (Covid-19) pandemic.
“…(the debt issuance) would help further expedite economic recovery prospects through more pro-active pump-priming initiatives of the government to further stimulate more economic/business activities, going forward,” he said.
Economic managers said the government was able to register the lowest coupon levels with the latest issuance, which is expected to be settled on December 10.
The new 10.5-year paper fetched a coupon rate of 1.648 percent while the coupon rate of the 25-year paper is at 2.65 percent.
The issuance is the third for the government’s commercial overseas borrowing this year after the USD2.35 billion worth of 10-year and 25-year dollar-denominated bond last May and the EUR1.2-billion Euro bond last January.
This lessens the need for more monetary easing measures, Ricafort said.
The Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) reduced the central bank’s key rates by a total of 200 basis points, to date, partly due to the low inflation rate environment.
Its overnight reverse repurchase (RRP) rate is currently at 2 percent, lower than the 2.5 percent average inflation in the first 10 months of the year, making the real interest rate in negative territory.
Ricafort said more funding for national government programs would lessen the need for monetary policy interventions.
“The market environment is indeed very much favorable for the issuance of new offshore bonds for the Philippine government amid near-record low interest rates/borrowing costs amid the need to raise for more funds to finance various Covid-19 programs and other government spending such as infrastructure that all help improve economic recovery prospects,” he said.
The government has been offering global bonds in the first quarter in recent years and Ricafort said “this could help lower the government's borrowing costs through lower interest rates/borrowing costs, especially after the country's credit rating upgrades in recent years, as well as the lower interest rates for US-dollar denominated bonds amid weaker US dollar recently, though there is still the need to hedge/manage any foreign currency risks, going forward.”
“Furthermore, US dollar bond offering of the Philippine sovereign would also help reduce any crowding-out effects in the local credit market or less competition from the government by borrowing from the global market instead of the domestic market, thereby less pressure on local interest rates/borrowing costs,” he added. (PNA)
