Surrendered crowns

The mopping up operations of the Bangko Sentral ng Pilipinas (BSP) is expected to have minimal impact on the government securities market but could drain funds out of short-term Treasury bills (T-bills) if monetary officials would price its special deposit accounts above benchmark rates.
To arrest the rapid increase in domestic liquidity, the BSP intends to lure government deposits away from banks by offering better interest rates and the Monetary Board also allowed the trust departments of banks to park their funds in the BSP’s special deposit accounts (SDAs).
National Treasurer Omar Cruz said the moves should have only a minimal impact on the T-bill market since government corporations have been buying less and less government securities since rates started to go down.
According to Cruz, the increasingly small size of government securities that were in the hands of government owned and controlled corporations (GOCCs) should therefore minimize the impact of the BSP’s mop-up operations.
On the other hand, BSP Governor Amando M. Tetangco Jr. said that since the BSP intends to base the terms on prevailing market rates, the impact would be “small”.
“We are looking at rates that are based on market (rates) but are attractive enough if the idea is to attract liquidity out of the system,” Tetangco said.
Although finance and even BSP officials contend that the impact would be minimal, documents showed that at the outset, the BSP’s SDAs would compete with the 91- and 182-day T-bills if the SDA rate would end up much higher than T-bill rates.
The documents indicated that since T-bill rates have been dropping to all-time lows, investors would enjoy “meaningfully improved” return in exchange for locking in their funds with the BSP’s SDA on term basis.
The document explained that the BSP does not allow pre-termination of SDAs but this would not be an issue since over-the-counter participants tended to hold their investments until maturity.
However, given the short-term nature of SDAs in general, the document indicated that treasury auction officials expected a high transaction turnover which would impact on operations.
The document said that since trust accounts are generally geared towards estate planning, their mindset was towards medium to long-term. Ultimately, this meant that participation would be most viable only to investors with short-term investment requirements.