MANILA, Philippines – Policy rates were kept steady on Thursday but interest charged on special deposit accounts (SDA) was slashed anew as the Bangko Sentral ng Pilipinas (BSP) looks at pushing out credit to finance economic activity.
Key rates were maintained at their record-lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending, but SDA rates were cut by 50 basis points to 2 percent, across all tenors.
The cut is “effectively immediately,” BSP Deputy Governor and officer-in-charge Nestor Espenilla, Jr. said.
SDA are fixed-term deposits of banks and their trust departments with the central bank with maturities of one week, two weeks and one month. This was the third time SDA rates were cut, following reductions of 50 basis points each in January and March.
“The Monetary Board’s decision to maintain the policy interest rates at their current levels is based on its assessment that the inflation environment is likely to remain manageable,” Espenilla told reporters.
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Inflation is seen to settle at 3.2 percent this year, slightly lower than the 3.3 percent forecast in March “due to lower oil prices,” BSP Deputy Governor Diwa Guinigundo said in a briefing.
For next year, consumer prices would likely rise 3.4 percent, up from 3.3 percent, on expectations of higher electricity prices, he added. Both forecasts fell within the BSP’s 3- to 5-percent target range.
The benign inflation outlook, Espenilla said, gives space to the central bank to allow more credit to flow into the economy without risking price and financial stability.
As of April 5, SDA deposits totaled P1.929 trillion, up 1.20 percent from previous week’s from P1.906 trillion. Parked funds on the facility hit a record-high of P1.95 trillion last March 15, a day after the BSP made the second rate cut.
“The focus of the Monetary Board was more on pushing funds to the real sector so that more and more economic activities will be funded,” Guinigundo said.
“It will also allow the distribution of liquidity particularly in favor of capital markets so that capital markets will continue to develop and deepen and increase the absorptive capacity of the economy,” he added.
Asked how much interest savings will the BSP record with the new cut, Guinigundo said savings are only “secondary consideration” to the decision. Central bank officials have said the previous two cuts will allow the BSP to save P20 billion over the next 12 months.
As of November, a total of P65.5 billion was shelled out by BSP to pay for the SDA interest. This contributed to its losses amounting to P86.31 billion for the first 11 months, nearing its record-high of P86.94 billion in losses in 2007.
“We have to be more careful anticipating where these funds have been going. If you look at the impact of two SDA cuts that we did…, these have not actually result to the significant outflow of funds from the SDA,” Guinigundo said.
“The market can go one way and the other. It’s the call of the market,” he added.
