The Bureau of the Treasury (BTr) reported the country’s interest payments for government debts in January surged by 80.1 percent to P104.4 billion from P57.98 billion in December last year.

The BTr posted the growth after the peso weakened against the US dollar by 0.9 percent at P58.365 per $1 during this period, according to the Bankers Association of the Philippines.

According to Bloomberg, the United States Treasury yields also increased around 4.5 percent amid economic uncertainties from US President Donald Trump’s protectionist trade policies.

The government’s higher interest payments reflected expansions of interest obligations for domestic debt at P72.3 billion from P37.4 billion and for external debt at P32.1 billion from P20.5 billion.

Under domestic debt, the government incurred the highest interest payments of P63.7 billion from fixed-rate Treasury bond issuances, up from P14.5 billion.

Treasury bills’ interest payments also grew to P3.2 billion from P2.3 billion.

However, interest payments for retail Treasury bonds dropped to P3.6 billion from P19.2 billion.

US tariff actions move rates

Bank of the Philippine Islands chief economist Jun Neri said the Bangko Sentral ng Pilipinas might keep its policy rate near the current 5.75 percent in curbing inflation if Trump’s high tariffs on Chinese, Canadian and Mexican goods lead to trade wars.

Trump ordered 25 percent tariffs against Canada and Mexico and an additional 10 percent against China to be implemented on 2 April.

However, Reuters reported Trump aims to impose further tariffs while investors are advising him to take a “more measured” approach.

In the worst scenario, Neri said the wars could further weaken the local currency up to P60/$1 dollar.

If global trade remains stable, Rizal Commercial Banking Corporation chief economist Michael Ricafort said the Philippine central bank might cut its policy rate by 50 basis points (bps) this year.

He said the rate reduction will likely mirror the moves of the US Federal Reserve which analysts said might loosen its policy by 50 bps until 2026 and by 25 bps in 2027.

“There could be wider US budget deficits due to possible tax cuts for US businesses that could lead to higher US inflation and more supply of US government bonds and higher yields for these debt papers. All these could lead to fewer central banks’ cuts,” Ricafort said.

However, he said Trump’s advisers might be able to sway the US president to ensure interest rates spur sustainable economic growth.

“Policy rate cuts prioritize faster economic growth and development, provided that the peso is relatively stable versus the US dollar,” Ricafort said.