Latest Stories

Cut in SDA rate seen to be just a matter of time

BSP on guard against risks brought on by excessive inflows


The Bangko Sentral ng Pilipinas on Thursday confirmed that a reduction in the interest rate on special deposit accounts (SDA) could be imminent because of the expected surge in the inflow of foreign “hot money” resulting from the upgrade in the country’s credit rating.

BSP Governor Amando Tetangco Jr. said the assignment of an investment grade to the Philippines would attract even more foreign portfolio investments, and that the regulator might have to cut the SDA rate to avoid excessive liquidity.

Because it is higher than the yield of short-term government securities, SDA remains highly attractive despite the two rate cuts done earlier this year.

“The BSP has not maxed out its traditional tools [to manage liquidity in the economy] yet. We continue to have scope to adjust the SDA rate and tweak its operations,” Tetangco said in an e-mail to the Inquirer.

According to the central bank, foreign portfolio investments are welcome, but the flow of excessive amounts may result in asset price bubbles and the peso’s steep appreciation.

The BSP actually prohibits foreign funds from being invested in SDAs, but the regulator believes that some foreign portfolio investors may still be parking their funds in the deposit facility. Further reduction in the SDA rate will discourage investors from depositing their funds in the facility.

Last January, the BSP cut the interest rates on SDAs to a uniform 3 percent. Previously, SDA rates were set at varying margins above the BSP’s key policy rate of 3.5 percent depending on maturity.

On March 14, the regulator undertook a 50-basis-point cut, setting the rate at 2.5 percent.

Latest data from the central bank showed that, as of March 8, the amount deposited in the SDA facility reached an all-time high of P1.93 trillion. This is despite the rate cut undertaken January.

It is yet to be seen whether the rate reduction on March 14 would cause a decline in the SDA deposits.

The BSP decided to reduce the rates earlier this year because of the peso’s steep rise. The peso rose by nearly 7 percent in 2012, and continues to appreciate this year.

Market players said the peso would have been even stronger were it not for measures implemented by the BSP.

Apart from tempering the peso’s rise, a cut in the SDA rate will reduce the central bank’s interest expenses and losses. Latest income statement of the BSP showed that it posted a net loss of about P86 billion in the first 11 months of 2012.

Officials said the reduction of the SDA rate would also be consistent with international best practices. They said that in many advanced and emerging economies, interest rates offered through deposit facilities of central banks were lower than the key policy rates.

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: Business , interest rate , special deposit accounts

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


  • Napoles tags over 100 officials in pork scam – Lacson
  • Vitangcol to sue Czech envoy
  • Senator’s kickback from pork bigger than those of Enrile, Estrada, Revilla – Lacson
  • 43 out of 414 Etihad passengers yet to be found, tested for MERS-CoV – Palace
  • Sandigan junks Marcos family claim to Paoay property
  • Sports

  • Caguioa blasts ‘no heart, soft’ Ginebra on Twitter
  • San Mig Coffee grinds out win over Alaska to force decider
  • UP nips St. Benilde; Adamson blasts RTU in Filoil women’s caging
  • Kevin Garnett responds to Raptors’ GM F word
  • Albert Pujols hits 500th HR of major league career
  • Lifestyle

  • Entering the monkhood a rite of passage
  • Haneda International Airport: A destination on its own
  • Wanted: Beauty queen with a heart that beats for the environment
  • Kim Atienza: At home with art and design
  • Life lessons I want to teach my son
  • Entertainment

  • Bollywood Oscars, film stars come to Florida
  • Ex-Fox exec denies allegations in sex abuse suit
  • Kris Aquino backtracks, says Herbert Bautista and her are ‘best friends’
  • Summer preview: Chris Pratt enters a new ‘Galaxy’
  • Bon Jovi helps open low-income housing in US
  • Business

  • SM to rebuild Tacloban hospital
  • PSEi slips after 4-day rally
  • Toyota sells 2.58 million vehicles, outselling GM
  • McDonald’s 1Q profit slips as US sales decline
  • SEC approves SM’s P15B retail bond offer
  • Technology

  • ‘Unlimited’ Internet promos not really limitless; lawmakers call for probe
  • Viber releases new design for iPhone, comes to Blackberry 10 for the first time
  • Engineers create a world of difference
  • Bam Aquino becomes Master Splinter’s son after Wiki hack
  • Mark Caguioa lambasts Ginebra teammates on Twitter
  • Opinion

  • One-dimensional diplomacy: A cost-benefit analysis of Manila’s security deal with Washington
  • No ordinary illness
  • Reforest mountains with fire trees and their kind
  • Day of the Earth
  • When will Chinese firm deliver new coaches?
  • Global Nation

  • 19 Ukrainians, Russians, Filipinas rescued in bar raid
  • Filipinos coming home from Mideast must obtain MERS clearance – DOH
  • US Secret Service in Manila ahead of Obama visit
  • Palace thanks Estrada for successful HK mission
  • Hong Kong accepts PH apology; sanctions also lifted
  • Marketplace