SDA amount remains huge; BSP considers more rate cuts

The Bangko Sentral ng Pilipinas is not ruling out further reduction in the interest rate on special deposit accounts.

According to BSP Governor Amando Tetangco Jr., further reduction in the SDA rate is being reviewed by the Monetary Board.

The cut in SDA rate is but one of several proposals the BSP is considering to enhance monetary policy.

“We’ll continue to review that if there’s a need to take further action,” Tetangco on Wednesday said, referring to the likelihood of a cut in the SDA’s interest rate.

Last week, the BSP’s Monetary Board decided to further reduce the interest rate on SDAs by 50 basis points to 2.5 percent. A similar rate cut was undertaken in January.

The cut in the SDA interest rate was meant to encourage banks to withdraw some of their funds parked with the BSP and use the money to boost lending activities.

Banks are now awash in cash due to the economy’s expansion, as seen in the growing deposits of individuals and businesses.

Although credit has been growing by a double-digit pace over the past two years, Tetangco said there is room for further growth in lending.

According to the BSP chief, total outstanding loans in the country are equivalent to just 50.4 percent of the gross domestic product (GDP). In other emerging Asian economies, credit-to-GDP ratios are over 100 percent.

Also, a lower SDA rate will reduce the central bank’s interest expenses. The recent rate cuts done so far this year could slash the central bank’s interest payments by P20 billion over a one-year period.

Despite the recent rate cuts, funds deposited in the SDA facility of the central bank remain huge at about P1.8 trillion.—Michelle V. Remo