Economists expect higher interest rates for P45-billion debt papers to be auctioned off by the Bureau of the Treasury next week, as investors remain uncertain on inflation trajectory and the central bank's policy rate.

The BTr on Monday will offer Treasury bills or T-bills amounting to P15 billion, which is equally divided for 91-day, 182-day and 364-day papers.

On Tuesday, the BTr will auction off seven-year T-bonds valued at P30 billion and have a coupon rate of 6.375 percent.

Last week, the government agency partially awarded T-bills worth P12.75 billion out of its P15 billion program as average rates increased by at least 11 basis points for all T-bill tenors: 89-day, 179-day and 362-day.

Their rates rose to 6.343 percent, 6.462 percent and 6.592 percent, respectively. All were above rates at the secondary market.

Meanwhile, the BTr did not award its 10-year T-bonds as the average rate climbed to 7.196 percent from 6.512 percent.

Auction results

These auction results came after the Bangko Sentral ng Pilipinas raised its policy rate to 6.5 percent by 25 bps during an off-cycle period to arrest a possible faster inflation in October.

With the higher rate, the BSP projects slower inflation for last month at a range of 5.1 percent to 5.9 percent, or lower than the 6.1 percent in September.

Rate unchanged likely

Dan Roces, chief economist of Security Bank, said the BSP might choose to keep its rate at its Monetary Board meeting on 16 November to match the recent decision of the US Federal Reserve.

In this case, however, he said investors will likely demand for higher T-bills or T-bond rates to reduce their investment losses.

"If the BSP chooses to pause in line with the Federal Reserve, there may be a risk of not adequately addressing local inflationary pressures, with implications for bonds via inflation risk premium,"

Roces told the Daily Tribune on Friday.

The Security Bank chief economist believes the BSP can still raise its rate by another 25 bps to ensure inflation will not accelerate further.

"We see another 25-bps hike as the most likely outcome in the 16 November  BSP policy meeting, bringing the rate to 6.75 percent, as the central bank tries to contain second-round inflation effects which could be detrimental to prospects in the long-run if not contained," he said.

Roces predicts inflation in October to have slowed to 5.4 percent, which is near mid-point of the BSP forecast and above the ideal range of 2 percent to 4 percent.

Steady rate to support

peso stability

However, Rizal Commercial Banking Corporation chief economist Michael Ricafort said a steady rate will support stability of the peso exchange rate and import prices.

"A pause on local policy rates is also a possibility, especially if the peso exchange rate is relatively stable," Ricafort added.

Ricafort believes inflation in October would settle near the low-end of the BSP forecast at 5 percent.

For long-term perspectives on debt markets and inflation, Ricafort said investors will be taking insights from a panel discussion with Federal Reserve chairman Jerome Powell at the International Monetary Fund's annual research conference on 9 November.