BSP sees SDA outflow as rate cut continues

MANILA, Philippines - The sustained fast pace of the country’s economic growth would push out more funds from the special deposit accounts (SDA) as more avenues are being opened to absorb the excess liquidity, a senior official of the Bangko Sentral ng Pilipinas (BSP) said.

“We expect more absorption of funds from the SDA,” BSP Assistant Governor Ma. Cyd Tuaño-Amador said in a briefing Friday.

“The economy is powering ahead and so any liquidity released will eventually be absorbed by the economy,” she said.

For the past three policy meetings, the BSP’s Monetary Board successively slashed the interest it charges on SDA – fixed-term deposits by banks and trust departments – by 50 basis points, bringing the rate down to two percent.

The move, officials have said, was meant to release some P1.9 trillion of idle money to the financial system to boost economic activity and deepen the capital markets.

However, SDA deposits continued to rise, hitting a record P1.983 trillion as of April 15 even after the first two rate cuts. It has since dipped to P1.96 trillion a week after that, BSP data showed.

Amador said the effect of the BSP’s moves may not be felt immediately due to some lag. However, as domestic spending increases and more credit is needed, SDA funds should begin to decline soon, she said.

At the same time, as more money is released into the financial system, inflation should also remain manageable.

“We are seeing a very healthy financial system that is able to intermediate the funds from the surplus units to those who need the funds,” Amador said.

“We also see a financial system that manages the risks attendant to the utilization of these funds,” she said.

Asked if additional future SDA rate cuts are possible, Amador declined to answer but assured the public that decisions will be based on the economy’s overall dynamics.

“The primary motivations behind the actions of the monetary board have always been the regard to safeguard price stability and financial stability,” she stressed.