By Daryll Edisonn D. Saclag, Reporter

Funds parked with BSP’s special deposit facility shrink 27% in February

Posted on March 21, 2015

DESPITE HIGHER interest rates for special deposit accounts (SDA), funds parked in the central bank’s liquidity-draining facility fell by nearly a third at end-February from a year ago, official data showed.

SDA deposits totaled P1.001 trillion in the first two months of the year, down 27% from the P1.376 trillion recorded in the comparable 2014 period, data from the Bangko Sentral ng Pilipinas (BSP) Web site showed.

SDAs are fixed-term deposits by banks and trust entities with the central bank. These were introduced in November 1998 to expand the BSP’s toolkit for liquidity management.

Monetary authorities last year raised SDA rates by a total of 50 basis points (bps) to 2.50% to siphon off excess funds in the financial system after strong liquidity growth, which hovered near 40% at the start of 2014, had threatened to push inflation beyond the high end of the central bank’s 3-5% target.

BSP Deputy Governor Diwa C. Guinigundo had said in January that “banks found it more profitable to lend rather than simply deposit their money with BSP.”

Funds parked in the facility reached a peak of P2.132 trillion in February 2013 as investors looked for high yields over the short term.

In response, the BSP implemented wholesale changes to its standing deposit facility in 2013 in a bid to return the SDA to its original purpose -- a tool to mop up excess liquidity and not an investment outlet.

It reduced the interest rates paid on SDA deposits by a total of 150 basis points that year, bringing them to 2.0% from 3.5% across all tenors.

Moreover, it prevented individual investors from tapping SDAs by banning banks from using the facility for their fiduciary business and investment management accounts. Banks could only make placements for their fund management activities, specifically unit investment trust funds.

In 2012, the BSP also restricted non-residents from tapping the facility.

However, SDA rates were hiked anew last year in the face of rising inflationary pressures.

Besides SDA rates, the central bank also hiked key interest rates by a total of 50 bps to 4% and 6% for overnight borrowing and lending, respectively, and banks’ reserve requirement ratio by a total of two percentage points to put a lid on inflation.

These policy adjustments helped curb the rise in prices of widely used goods to an average of 4.1% last year, well within the BSP’s 3-5% target and just below its 4.2% forecast.

This year, the BSP expects inflation to settle within 2-4%, with an average forecast of 2.3%.