News Column

BSP keeps key rates, raises SDA

June 20, 2014

By Mayvelin U. Caraballo, The Manila Times, Philippines



June 20--The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) held its benchmark interest rates on overnight borrowing and lending facilities steady at its policy meeting Thursday, but raised its rate on the Special Deposit Account (SDA) facility by 25 basis points to 2.25 percent.

BSP Governor Amando Tetangco Jr. told reporters in a press briefing after the Board meeting that the policy making body decided to keep the interest rate for overnight borrowing or reverse repurchase (RRP) facility at 3.5 percent and the rate for overnight lending or repurchase facility (RP) at 5.5 percent.

The reserve requirement ratio (RRR) for banks also remained unchanged at 20 percent. The Monetary Board had raised the RRR by one percent in each of its two previous policy meetings.

Raising the SDA rate is seen as a prudent hedge against price or stability risks caused by excess liquidity in the financial system.

Explaining the central bank's latest move, Tetangco said the Monetary Board decided to adjust the SDA rate to counter risks to price and financial stability that could emanate from ample liquidity, noting that a modest upward adjustment in interest rates would be prudent amid robust credit growth.

"The Monetary Board believes that solid domestic growth prospects allow some scope for a measured adjustment in the SDA rate to ensure that monetary and credit conditions continue to be appropriate," Tetangco said.

The Monetary Board's last action on SDA was in April last year, when it lowered the interest rate by 50 basis points to 2 percent.

SDA is a monetary facility under the BSP that was made available to banks to manage excess liquidity in the financial system. Raising the interest rate in general encourages higher bank deposits in the SDA facility, and helps to counter inflation by isolating some money from the financial system.

The central bank, nonetheless, revised upward its inflation forecast for this year to 4.4 percent from the previous projection of 4.3 percent. For 2015, it also adjusted the inflation forecast from 3.4 percent to 3.7 percent.

Tetangco said that inflation is projected to settle within the upper half of the target ranges of 3-percent to 5-percent for 2014 and 2-percent to 4-percent for 2015 despite the higher 4.5 percent inflation outturn in May and the inclusion of the potential impact of El NiÑo on food and utility prices.

The BSP governor also noted that the balance of risks to the inflation outlook remains tilted toward the upside, with potential price pressures emanating from the possible uptick in food prices as a result of changing weather conditions, and pending petitions for adjustments in power rates.

"Going forward, the BSP will remain vigilant against a potential buildup in inflation expectations and financial imbalances. The BSP stands ready to undertake further policy actions as necessary to safeguard price and financial stability," he said.

BSP decision appropriate -- analyst

The central bank's decision indicates that the country' monetary authority is well aware of the Philippine economy's present situation, an analyst said.

"What the BSP did, raising SDA rates and reversing its previous actions on the same, should partially ease inflationary pressures that arise from the continued strong liquidity flows and positions in the financial markets," said Justino Calaycay, analyst at the Accord Capital Equities Corp.

Calaycay said the central bank's decision to raise the interest rate on the SDA facility "provides an alternative to excess funds in the system in which to park particularly with equity markets going through some shaky moments."

Earlier, Calaycay projected that the BSP may hold its key policy rates steady, as the central bank will consider the impact of higher interest rates on the slowing Philippine economy.

"Keeping the rates steady was what we had expected referencing the balance between inflation risks on one hand and slower growth on the other. We had insisted that keeping growth and pushing it to the target band would be a priority even as it keeps one eye on inflation threats," he said.

The BSP's move to hold its key rates steady follows that of the US Federal Reserve, which also held firm on its benchmark rates in its policy meeting on Wednesday (Thursday in Manila).

___

(c)2014 The Manila Times (Manila, Philippines)

Visit The Manila Times (Manila, Philippines) at www.manilatimes.net

Distributed by MCT Information Services


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Manila Times (Phillipines)


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters