Deciding against touching its overnight lending and borrowing rates, the BSP lifted the uniform 7.5-percent interest rate on bank placements with the BSP and instead imposed a tiered interest rate scheme depending on the size of deposits.
According to House appropriations committee chairman Rep. Joel Salceda, however, the reduction of the rates on bank deposits with the BSP had the effect of a more dramatic rate cut than if the Monetary Board (MB) had reduced its overnight rates.
Salceda, who is a close economic adviser to President Arroyo, expressed "surprise and disappointment" when the MB announced its decision to keep its policy rates steady but decided to lower the interest rates on bank placements with the BSP.
Analysts made the same estimate, saying that the move had the effect of reducing lending rates by about 170 to 200 basis points.
"That is too abrupt," Salceda said. "The direction is right but the speed is bad. A more unambiguous move would have been better, I didn’t expect the MB to behave so uniquely, at best."
"What they have done is too extreme," said an analyst from a foreign bank. "If they really wanted to compel banks to lend, they should have reduced the policy rates because that extends longer into the horizon." According to BSP Governor Amando M. Tetangco Jr., on the other hand, the ultimate impact of the restoration of tiered rates would depend on the amount of placements that banks have with the BSP.
"The move to tier rather than cut was really aimed at encouraging banks to part with their large BSP placements and look for alternative investments," he said. "We wanted them to lend to the public more."
However, analysts pointed out that even the BSP made it clear the tiering scheme would be a temporary measure and could be lifted within the next three months.
"The longest period that the tiered rates were in effect was about 15 to 16 months," said the analyst. "But since the BSP has already said this one will not last long, what bank will bother to lend now when rates are down and they know they will go up very soon?"
If the BSP’s intention was to force banks to lend their funds instead of parking them with the BSP, analysts said the MB would have to cut its rates if and when it decides to lift the tiered rates.
Salceda for his part said the MB should have opted to reduce its policy rates by 50 basis points instead. "This would have been a clear, unambiguous signal," he said.
The BSP had been under intense pressure to intervene in the foreign exchange market, with exporters lobbying – Malacañang because the strong peso was affecting their profits and competitiveness in the export market.
Analysts said that when the tiering scheme was imposed, the foreign exchange rate was quick to react and the peso went down briefly against the dollar. However, this was quickly overwhelmed by the magnitude of inflows from overseas Filipino workers.