The Bureau of the Treasury (BTr) on Tuesday made full award of its reissued seven-year Treasury bond (T-bond) worth P30 billion as the average interest rate declined compared to the auction result in March.

However, the lending rate was still higher compared to recent weeks as investors wait for the longer-term impacts of Trump tariffs.

The BTr said the T-bond attracted total bids amounting to P71.7 billion or 2.4 times oversubscription.

The government security fetched an average rate of 6.081 percent, lower than the 6.750 percent recorded last 11 March.

Remaining term

The bond has a remaining term of seven years and four months.

Rizal Commercial Banking Corporation chief economist Michael Ricafort said the bond’s average rate on Tuesday at 6.081 percent rose from the 5.986 percent of the comparable bond issued last 8 April.

It was also slightly higher than the 6.0609 percent recorded for the comparable bond in the secondary market on 5 May.

Ricafort said the higher rate reflected investors’ worries about Trump tariffs which could lead to higher global inflation as exporters pass the tariff costs to consumers.

Waiting for inflationary impact

“The markets still wait for any inflationary impact of Trump’s higher US import tariffs, especially with China that could determine the pace of future Federal Reserve’s rate cuts,” he said.

US President Donald Trump announced a 145 percent tariff against China, the world’s manufacturing powerhouse, on 2 April.

Despite this, Philippine inflation last month slowed to 1.4 percent from 1.8 percent in March after rice and transport prices declined faster compared to other goods.

However, core inflation, which excludes food and fuels, was steady at 2.2 percent.

More rate cuts

Bank of the Philippine Islands chief economist Jun Neri said a gradual reduction in interest rates is possible as countries continue to negotiate for lower Trump tariffs.

“Cutting the policy rate too aggressively could make the Philippine economy vulnerable to a sudden reversal in the Federal Reserve’s stance, which might compel the Bangko Sentral ng Pilipinas (BSP) to implement substantial rate hikes in a worst-case scenario,” he said.

Economists said a narrow gap between the US and Philippine central banks’ rates will keep levels of foreign exchange and investments manageable.

BSP easing policy rate

HSBC economist for Southeast Asia Aris Dacanay said the BSP might ease its policy rate sooner than June after the drop in April inflation. He said this will bring down the Central Bank’s rate to 4.75 percent by year-end from the existing 5.5 percent.

“Subdued price pressures will likely help bolster the country’s main driver of growth: consumption,” he said.