Apr 252013
 

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) kept its benchmark interest rate steady at a record low of 3.5 percent yesterday, while cutting the rate on special deposit account (SDA) by another 50 basis points to boost economic activity and contain the peso’s strength.

Key policy rate was maintained at  its record  low of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending, but SDA rates were cut by 50 basis points to two percent  across all tenors.

The cut was “effective immediately,” BSP Deputy Governor and officer-in-charge Nestor Espenilla Jr. said.

The central bank has eased rules on foreign exchange transactions to spur dollar buying and contain the peso’s strength as it expects more capital inflows after the country’s first-ever promotion to investment grade status in March, and with other rating agencies seen following suit later in the year or next year.

SDAs 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 three- to five-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.