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By Chino S. Leyco, Reporter
INTEREST rates on short-term
government debt papers declined Monday after the Bangko Sentral ng
Pilipinas (BSP) announced that financial instruments would be
subject to the final withholding tax.
Earlier, the BSP ruled that
lenders’ overnight borrowings with the central bank, also called
reverse repurchase agreements (RRPs), would be subject to a
20-percent final withholding tax as they are considered deposit
substitutes
At Monday’s auction, the
government secured P3 billion through the sale of six-month Treasury
bills at a rate of 6.476 percent from the previous 6.483 percent.
Banks were willing to lend up to P6.552 billion.
“There’s a shift to
government securities because of the withholding tax,” National
Treasurer Roberto Tan told reporters.
For the one-year debt paper, the
government awarded in full P3 billion with a yield of 6.745 percent,
lower than the previous 6.95 percent, as banks were willing to lend
P12.445 billion.
RRPs, which serve as a monetary
tool to control the money supply using the BSP’s open market
operations, are agreements to sell back securities or financial
instruments sold by lenders to the central bank, in exchange for
short-term funds. An RRP is effectively a borrowing transaction
secured by a financial instrument, usually in the form of T-bills or
fixed rate T-bonds.
The overnight RRPs entered into
by the BSP with any authorized agent bank are covered under deposit
substitutes, and so the final withholding tax would be deducted on
each maturity date and remitted to the Bureau of Internal Revenue,
the central bank had said in a circular issued last month.
A deposit substitute is an
alternative form of obtaining funds from the public through the
issuance, endorsement, or acceptance of debt instruments for the
borrowers’ own account, for the purpose of relending or the
purchase of receivables and obligations. These instruments may
include bankers’ acceptances, promissory notes and repurchase
agreements, among others.
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