Department of Finance (DOF) Secretary Ralph G. Recto said that key borrowing costs are unlikely to drop to pre-pandemic level amid expectations that the US Federal Reserve (Fed) will slow down its policy rate reduction.
According to the finance chief, the market expectation for 2025 is for the Fed to reduce interest rates by 50 basis points, while he noted that the Philippine central bank may have room for 50 to 75 basis points—thus, settling for five percent or 5.25 percent this year.
To recall, the Bangko Sentral ng Pilipinas (BSP) kept its key policy rate at four percent in 2019, gradually lowering it to two percent in 2020 amid the pandemic, where it remained unchanged until 2021.
Interest rates began climbing in 2022 to curb inflation, reaching 5.50 percent, and rose further by 100 basis points in 2023, peaking at 6.50 percent. The central bank kicked off its easing cycle in the third quarter of 2024, which is not down to 5.75 percent.
On the concern of cutting faster than the Fed, Recto said this decision will “depend on what inflation looks like in the Philippines.”
Concerns about looming higher costs for debt service also emerged, given the fat chance of interest rates and bond yields returning to the pre-pandemic levels.
Such is the reason behind the government’s strategy of adopting an 80:20—80 percent domestic debt, 20 percent foreign debt—borrowing ratio for this year, Recto argued.
“Moving forward, maybe the next administration, you want a 90:10, but that also all depends on the local liquidity. You don't want to crowd out the private sector,” the finance chief said.
“But today, let me point out, there is no crowding out. In fact, we are taking the slack. But once we feel that the private sector is ready to invest, then we can pull back government spending; we reduce our borrowings,” he added.
“It depends on how much the private sector invests. But if they're not investing yet, then the government has to take the slack,” he stressed.
Bond issuances in 2025
National Treasurer Sharon P. Almanza told reporters on Jan. 16 that the government remains open to issuing bonds in the Yen market as part of its $3.5 billion borrowing program for the year.
Alamanza said the Bureau of the Treasury (BTr) is closely monitoring developments, including potential rate increases, and is keeping an eye on all currencies for opportunities.
As for the planned Sukuk bond issuance, Almanza said they are working closely with the Privatization and Management Office (PMO) and other agencies to identify assets required for the issuance, as Sukuk bonds need asset-backed properties.
She explained that while the national government is open to issuing Sukuk bonds, the timeline depends on securing these assets.
Likewise, the government has completed a pilot for the tokenized bonds but needs to ensure seamless integration with the Bangko Sentral ng Pilipinas (BSP).
Almanza noted that while the pilot was successful on the security side, the cash component is still handled manually, which makes the process not fully seamless.
The next step, she said, is waiting for the BSP to implement a digital currency to make the transaction process smoother. Hence, the absence of a plan for a seamless process this year.
For retail bonds, however, Alamanza said that the government is working with e-wallet GCash on GBonds.
“I think GCash is still working on some iron out. For the Gcash and GBonds, we’re hoping that all the iron out ones and then the pilot will be ready by Q2 [quarter two of 2025],” the Alamanza assured.