Latest Stories

Monetary tightening seen


The Bangko Sentral ng Pilipinas, despite the hefty easing of special deposit account (SDA) rates recently, is seen turning “creatively hawkish” or biased toward monetary tightening as multiple challenges loom over the horizon.

New York-based think tank Global Source said in a recent report that the BSP was facing a policy “quadrilemma” of reducing mounting losses while trying to keep policy independence and manage exchange rate stability and capital flows all at the same time.

The report, dated March 21 and authored by economists Romeo Bernardo and Marie Christine Tang, projected that moving forward, the BSP would likely favor instruments and policies that would limit its losses, including measures that reduce the running losses on its negative carry such as lowering the SDA rate or resorting to using the reserve requirement on bank deposits, which are non-interest bearing, to fund asset purchases.

The SDA is a potent monetary tool created by the BSP to mop up excess liquidity in the system, offering higher-yielding deposit instruments at the central bank that can cascade even to retail investors. About P1.9 trillion of liquidity is currently locked up at the SDA facility.

On the reserve requirement, Global Source said the BSP might either raise the existing reserve requirement ratio or impose such requirement on trust products.

“The risk with bringing the SDA rate even lower is the potential for asset bubbles in the already frothy stock and property markets. Considering that SDA volumes have continued to rise, it is not clear at this point if and by how much the interest rate cuts will whet investors’ risk appetite, especially since bond yields are already dropping in anticipation of more cuts,” the report said.

But it said a safe assumption was that a portion of any SDA withdrawals would be used to fund increased government domestic borrowings. In the case of foreign funds that have circumvented the BSP ban, the report said their exit would contribute to a weaker peso and would be good for the BSP’s books.

“Still, if the lower rates induce banks to lend too aggressively, the BSP may then switch to raising reserve requirements apart from tightening prudential limits further,” the report said.

Follow Us

Follow us on Facebook Follow on Twitter Follow on Twitter

Recent Stories:

Complete stories on our Digital Edition newsstand for tablets, netbooks and mobile phones; 14-issue free trial. About to step out? Get breaking alerts on your mobile.phone. Text ON INQ BREAKING to 4467, for Globe, Smart and Sun subscribers in the Philippines.

Tags: Bangko Sentral ng Pilipinas , money , News

Copyright © 2014, .
To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.
Factual errors? Contact the Philippine Daily Inquirer's day desk. Believe this article violates journalistic ethics? Contact the Inquirer's Reader's Advocate. Or write The Readers' Advocate:
c/o Philippine Daily Inquirer Chino Roces Avenue corner Yague and Mascardo Streets, Makati City, Metro Manila, Philippines Or fax nos. +63 2 8974793 to 94


  • Drug firm Novartis to help Leyte firefighter
  • Fears grow for hundreds missing in South Korea ferry capsize
  • Robot sub makes first complete search for plane
  • uFly fires flight simulator who appeared on CNN
  • DPWH allots P1.2 trillion for PH roads
  • Sports

  • Federer would skip tennis to be with wife, newborn
  • Manny Pacquiao in PBA? If so, he’ll wear No. 17
  • PSC sets Blu Girls US training
  • Power Pinoys settle for 7th place
  • Successful coaches to get raise
  • Lifestyle

  • ‘Labahita a la bacalao’
  • This is not just a farm
  • Clams and garlic, softshell crab risotto–not your usual seafood fare for Holy Week
  • Moist, extra-tender blueberry muffins
  • The truffled mac ‘n’ cheese, eggs benedict, chicken leg confit are excellent
  • Entertainment

  • Jay Z to bring Made in America music fest to LA
  • Why Lucky has not bought an engagement ring for Angel
  • Derek more private with new girlfriend
  • ‘Community’ star happy with return of show’s creator
  • Jealousy is kid stuff
  • Business

  • PH presses bid to keep rice import controls
  • PSEi continues to gain
  • Number of retrenched workers rose by 42% in ’13
  • PH seen to sustain rise in FDIs
  • Gov’t subsidies to state firms fell in first 2 months
  • Technology

  • DOF: Tagaytay, QC best at handling funds
  • Smart phone apps and sites perfect for the Holy Week
  • Tech company: Change passwords or suffer ‘Heartbleed’
  • Filling the digital talent gap
  • SSS to shut down website for Holy Week
  • Opinion

  • Editorial cartoon, April 17, 2014
  • A humbler Church
  • Deepest darkness
  • ‘Agnihotra’ for Earth’s health
  • It’s the Holy Week, time to think of others
  • Global Nation

  • Japan says visa-free entry still a plan
  • First Fil-Am elected to Sierra Madre, Calif. city council
  • UC Irvine cultural night to dramatize clash of values in immigrant family
  • Filipino sweets and info served at UC Berkeley Spring Fest
  • Milpitas, California kids wrap up a successful run of ‘The Wiz’
  • Marketplace