SDA funds stream out as BSP deadline lapses

BSP Governor Amando M. Tetangco Jr. INQUIRER FILE PHOTO

Local banks have now withdrawn most of their non-pooled funds after the Bangko Sentral ng Pilipinas (BSP) ordered the withdrawal from its special deposit accounts (SDA) earlier this year.

According to BSP Governor Amando M. Tetangco Jr., the bulk of these funds have been absorbed by financial markets with ease, and any more that comes out should not pose a threat to the stability of consumer prices.

“Banks acted ahead of the deadline. The amount that will still be unwound this week may not be significant anymore,” Tetangco told reporters on Friday.

The deadline for the withdrawal of all individual investments in SDAs, which entered the window through Investment Management Accounts (IMA) offered by banks to their clients, lapsed Friday.

Money parked in the BSP’s SDA facility reached a peak of nearly P2 trillion in the first half of this year, resulting in massive losses for the BSP, which had to pay interest for the funds.

The SDA window, which was conceived as a tool for siphoning off excess liquidity from the economy, became an investment instrument for investors looking for a safe haven for their cash.

The BSP has lost hundreds of billions of pesos since 2010, partly because of the growth in SDA funds. In 2010, the regulator lost P90.1 billion. The central bank was able to trim this to P33.69 billion in 2011. But last year, it ballooned to P95.38 billion.

To remedy the situation, the BSP imposed a ban on IMA accounts from the SDA window. The BSP said banks had to cut their IMA funds in SDAs by 30 percent last July, before exiting completely at the end of November.

Investors still have access to the BSP’s SDA window, but only through unified investment trust funds (UITF), or other similar instruments that pool funds from different investors.

Latest data from the central bank showed money in SDAs totaled P1.48 trillion at the end of October, down by about a quarter from its peak in the first half, which means an extra P500 billion entered the economy.

This cash infusion was reflected in the growth in the country’s money supply,      which surged by 32.5 percent in October from 31.3 percent in September.

“Bulk of the money has already been unwound, and the impact has been reflected in the figures,” Tetangco said. Despite the increase in domestic liquidity, which in the past was a reliable indicator of the future movement of consumer prices, inflation averaged at 2.8 percent at the end of September. This was below the BSP’s full year target range of 3 to 5 percent.

Other refinements introduced by the BSP are the ban on foreigners from putting money in SDAs in a bid to curb currency speculation, as well as the reduction in yields to 2 percent across all maturities.

The BSP’s losses in the nine months to September fell 72 percent to P19.38 billion, due mainly to lower interest costs that came with the decline of SDAs.