Negative rates shaky, says Manila cbank

Philippine central bank governor Amando Tetangco said on Friday negative real interest rates were unsustainable even as the monetary authority lowered its forecast for average inflation in 2007. The benchmark Philippine 91-day Treasury bill rate hit 2.935 percent at an auction on Monday, close to record lows, while the annual inflation rate in February fell to a four-year low of 2.6 percent. Removing a 20 percent withholding tax on the T-bill yield and comparing it to inflation leaves real interest rates close to negative territory. A negative interest rate environment is something that cant be sustained for a period of time, Tetangco told a bankers forum. Interest rates in the GS (government securities) market are reacting to a lower inflation rate and reduced budget deficit and (an) expectation that the supply of GS will go down in the future as the government reduces borrowing.