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Freed cash seen to wind up in time deposits, bonds

MANILA, Philippines--Cash locked up in Special Deposit Accounts (SDAs) of the Bangko Sentral ng Pilipinas (the Philippine central bank) has gone down dramatically to P245.7 billion as of April 2 from a record P610 billion at end-February after monetary authorities last month decided to scrap longer-term SDA tenors and reduce interest rates on the remaining terms.

According to latest official data, funds placed in SDA accounts are now at par with those locked in overnight borrowings, the central bank's traditional monetary tool. The BSP's overnight borrowings amounted to P246.6 billion.

In previous months, SDA placements stood more than double the level of overnight borrowings.

The current levels of SDAs and overnight borrowings are not too far from their respective end-2007 levels of P294 billion and P295 billion, central bank data showed.

Bankers noted that when the BSP adjusted the SDA rates, cash placed in overnight borrowings hardly moved up.

This meant that some P360 billion freed up from the BSP's special accounts had gone elsewhere, bankers said.

They either flowed to traditional time deposits, bonds and other debt instruments, additional bank lending or foreign exchange instruments, bankers added.

"Because [SDAs] are alternative products to time deposits, you'll probably see time deposit products increasing again," said Carlos Borromeo, chief finance officer of Security Banking Corp.

Another banker said some of the money freed up from SDAs could be flowing to the BSP's foreign exchange swaps, which represent the BSP's dollar stock not yet counted as part of its gross international reserves.

These are dollars that the BSP has bought from the market and swapped for pesos to mop up liquidity arising from foreign inflows.

"That's [the BSP's] only alternative liquidity siphoning mechanism," the banker said.

As of end-February, the BSP has built up its dollar stock close outside of the GIR to $13 billion. The GIR as of end-March stood at $36.5 billion.

The BSP amended the rules on SDAs in May last year when it saw the need for a more powerful tool to check the robust growth in broad money supply.

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