BSP cuts SDA yield, retains key policy rates

Monetary officials still see no immediate inflation threat

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The Bangko Sentral ng Pilipinas on Thursday slashed the interest rate on special deposit accounts to help curb the appreciation of the peso.

At the same time, the BSP kept its key policy rates steady at 3.5 percent for overnight borrowing and 5.5 percent for overnight lending.

Although regulators reduced the SDA interest rate by 50 basis points—down to 2.5 percent from the previous 3 percent—they still believe that the rate of rise in consumer prices will remain modest over the short term.

The SDA rate was last reduced on Jan. 24. Prior to that, the rates hovered above 3.5 percent with varying margins depending on maturity.

The lower SDA rate is seen to make the deposit facility less attractive and, in turn, help stem the inflow of foreign portfolio investments. This will temper the peso’s appreciation.

BSP Governor Amando Tetangco Jr. said the cut in the SDA rate was meant to align existing policies of the BSP with international best practices. In many advanced economies, central banks’ interest rates on deposit accounts are lower than overnight borrowing rates.

“The reduction in the SDA rate is consistent with the BSP’s continuing efforts to fine-tune … its monetary policy tools,” Tetangco said.

The lower SDA yield is expected to encourage banks to withdraw some of their funds parked in the BSP, thereby increasing money circulating in the economy. But Tetangco said the additional money in the country’s financial system would not heighten inflation risks.

“The benign inflation outlook and improving growth prospects provide room for the reduction in the SDA rate,” he said.

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  • Handiong

    I expect the money to migrate to the stock market.

  • KappaPhiPhi

    ang problema, the owners would rather park it than invest it for whatever reasons they have. bsp may be right in this policy but it will not translate to immediate investment. australia has a better come on with this kind of product.

    • Handiong

      I’m sure some will be immediately invested in the stock market.

  • upupperclassman

    Central Bank should totally eliminate SDA. Put the money to work or send them back to countries where these money come from.

  • WeAry_Bat

    Galing ng BSP.

  • UrHONOR

    GOOD!  More fuel to the PSEI Rocket is needed….. make those trillions of SDA deposits work and show them the way to the business hub of the economy…. and have them “socialize” more often by circulating more frequently.

  • Hayek_sa_Maynila

    Good Job BSP-MB! Cheers! Your policies have adjusted well to the rapid changes in the global financial and economic landscape. I won’t be surprised if “The Banker” bestows the best Central Bank in the world award to the BSP this year.

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