BM 145 T-Bill Projection

Perez, Dayanara P.

Prof. Nerissa Calma

March 01, 2014

I. Abstract
This paper is all about the application of two different techniques in forecasting the
rate of the treasury bills on March 3, 2014. The researcher used both quantitative and
qualitative method in projecting the rate of the 91-day and 182-day Treasury bills. Using
the 3-month moving average method and some articles in the newspaper, the researcher
was able to project the bidding rate of the two Treasury bills. The researcher forecasted that
the 91-day T-bill will remain at 1.458% and the 182-day T-bill will stay at 0%.

II. Qualitative Technique
Qualitative technique was used in projecting the bidding rate of T-bills on March 4,
2014. The researcher was able to make her judgment by reading some articles in the
newspaper. These articles would significantly affect the forecasting of the bidding rate of the
Treasury bills.
Basically, the interest rate level of the T-bills is affected by the inflation rate or the
price level and the fiscal policy stance.
The researcher has observed that in the inflation rate, theres an influence of the
BSPs policy direction to achieve its mandate of maintaining price on the interest rate level.
In order to control the inflationary pressures, the BSP will have to increase its policy rates
which are the lending rate, overnight borrowing rate or reverse repurchase rate and
overnight lending rate or repurchase rate. By taking this action, the BSP is making an
indicator that the level of interest rate will increase.
On the other hand, the direction of the interest rates may also influence by the fiscal
policy stance. When the government incurs fiscal deficit, they need to finance its budget
requirements by borrowing from the domestic market or from abroad. There will be a strong
demand to borrow in order finance the gap when the deficit is high. This gives an upward
pressure on local interest, specifically when the government borrows from a less liquid
domestic market.
Reading the article Philippines Inflation Rate Accelerates in January, the researcher
observed that the Inflation rate of the Philippines rose to 4.2% from the rate recorded in
December which is 4.1%. This inflation rate is closer to the upper end of the central banks
estimate for the month 3.4% to 4.3%. The slightly increased of the inflation rate was
traced mainly to higher prices of foods and non-food items. On the other hand, core
inflation rate was steady at 3.2%.
Also in the article P1-B Budget Surplus in November, it states that the government
recorded a P1-billion budget surplus for the month of November 2013. It reversed the
Department of Finances (DOFs) expected deficit of P20.5 billion for the month. Cesar
Purisima, the Finance Secretary of the Department of Finance, said that the increased fiscal
space in November was especially encouraging given that the National Government had to
invest for recovery efforts in the aftermath of Super Typhoon Yolanda.
These data found in the newspaper may affect the ending result of the bidding rates
of T-bills in the succeeding semesters.

III. Quantitative Technique
Using the 3-month moving average technique, the researcher was able to forecast
the bidding rate of 91-day and 182-day Treasury bills. This forecasting method is done by
calculating the average of past data points.
The computation can be seen on Exhibit 1. The result of the computation of the 3-
month moving average of the 91-day T-Bill is 1.076%. The end result is slightly low
compared to its previous rate because of the low rates in the month of January and
February. Likewise, the forecasted rate of the 182-day T-Bill using the 3-month moving
average is 0.000%. The forecasted rate is exactly the same as the previous months rate
due to the rejection of the bid of 182-day T-bill by the National Government for the month
of January and February.

IV. Analysis and Conclusion
The researcher will make the most use of both quantitative and qualitative
techniques in forecasting the T-Bill rates. Using the qualitative technique, the researcher
has found out that some economic factors have a great impact in the interest rate level of
the Treasury bills. An increase in inflation rate and core inflation will lead to an increase in
the rate. On the other hand, an increase in the Financial Reserves will lead to a decrease in
the Treasury bill rates.
To incorporate the qualitative results, it can be seen that the inflation rate of the
Philippines rose to 4.2% from the rate recorded in December which is 4.1% and the core
inflation remained at 3.2%. An increase in inflation rate and core inflation will increase the
rate of the Treasury bills. Furthermore, it also observed that the government recorded a P1-
billion budget surplus for the month of November 2013. Having a budget surplus means
that that the government has financial reserves. An increase in financial reserves will lead to
a decrease in the T-bill rates.
Thus, the researcher therefore concludes that the rate 91-day T-Bill and the 182-
day T-Bill Rate will remain the same at exactly 1.458% and 0% on March 03, 2014. (See
Exhibit 2 & Exhibit 3 for the graphs of 91-day and 182-day T-bill)









V. REFERENCES

www.bsp.gov.ph
www.nscb.gov.ph
http://business.inquirer.net
www.tradingeconomics.com





















VI. Appendices
Exhibit 1. 3-month Moving Average Computation (in %)













Exhibit 2. 91 T-bill Actual vs. Forecast



Exhibit 3. 182 T-bill Actual vs. Forecast



0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
R
a
t
e
s

91-day T-bill
Actual
Forecast
0
0.2
0.4
0.6
0.8
1
1.2
R
a
t
e
s

182-day T-bill
Actual
Forecast