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NEWS UPDATES Asean Affairs        27 January 2011

Philippine government asks for steady rates

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The Philippine Department of Finance (DOF) is discounting market fears that the low-interest rate regime has come to an end, citing inflation and other macroeconomic indicators that remain well within target.

On the sidelines of the launch of PSETrade on Wednesday, Finance Secretary Cesar Purisima told reporters that there is no reason for the Bangko Sentral ng Pilipinas (BSP) to raise interest rates.

"The key policy rates are likely to stay at current levels. I think there is no reason for the Bangko Sentral to raise rates," Purisima said.

"What's happening on the interest rates is not warranted. The level of liquidity is very high so there is no reason for rates to go up. As for inflation, the BSP said it is still well within program," he added.

The BSP early this week said inflation this month is forecast to range from 2.7 percent to 3.6 percent. For the whole year, inflation is forecast to average between 3 percent and 5 percent.

Last year, inflation averaged 3.8 percent, or well within the 3.5 percent to 5.5 percent BSP target range.

Last Monday, the government failed to raise short-term money, after it rejected all bids for Treasury bills amid banks' high bids.

National Treasurer Roberto Tan had said the government can afford to reject or opt for partial award on bids if rates were "unreasonably high."

Purisima also on Wednesday said that the government is threshing out three issues preventing domestic banks from subscribing to the country's global peso notes (GPN).

While there is strong global appetite for peso-denominated debt, local banks are prevented by domestic regulations from making money from these debt papers.

"There are three concerns on that we need to resolve. These have been keeping banks from taking positions on the GPN," Purisima said.

He has already instructed Bureau of Internal Revenue (BIR) Commissioner Kim Henaresto make a policy statement on the tax treatment of GPN.

"There seems to be a confusion in the domestic market on whether GPN is tax free so I asked the BIR to issue a clear policy saying that for GPN, the tax is absorbed by the finance department," Purisima said.

He said there is also a need to thresh out with the BSP one of its policies regarding the treatment of GPN as a foreign exchange risk.

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