MANILA, Philippines?Deposits by banks to the special deposit account (SDA) facility of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) surged further in June to over P830 billion, an amount critics said could have been more useful for the economy if it were invested in lending.
Data from the central bank showed that SDA placements amounted to P834.4 billion as of end-June, up by 43 percent from only P584.9 billion as of the same period in 2009.
Some economists from the private sector said the goal of sustaining a high growth rate for the Philippines would be better achieved if more of the banks' money were infused into the economy, particularly by lending to businesses and consumers.
But since there is an opportunity for banks to earn an attractive interest without taking risk of lending more, particularly by placing money to the BSP's virtually risk-free SDA facility, the steep rise in deposits to the SDA facility has been expected, according to economists.
In the first quarter, the economy grew by a rarely robust pace of 7.3 percent year-on-year. The Aquino administration said it is targeting to sustain a strong pace of growth over the medium term.
Economists, however, said the banking sector could be more helpful in achieving the goal if it would lend more instead of investing more in the SDA facility.
In the July issue of the "Market Call," the joint publication of First Metro Investment Corp. and the University of Asia and the Pacific, the central bank was urged to reduce the SDA rate to encourage banks to extend more loans to businesses and consumers.
The SDA rate currently stands at four percent.
"We see this [SDA placements] as bothersome as we believe the BSP should be thinking of some liquidity enhancing measures as the fears of inflation are no longer founded," said the Market Call.
Victor Abola, economics professor at the UA&P, earlier said that since consumer prices would likely increase within tolerable levels over the short to medium term anyway, the BSP could afford to reduce the SDA rate.
He said additional funds for lending to consumers would help address the backlog in housing, while more funds for credit to businesses would help achieve the Aquino administration's goal of sustaining a robust economic growth.
The BSP said, however, it did not see the need to reduce the SDA rate. The SDA facility is so far efficiently helping siphon off excess liquidity in the economy, which it said could accelerate inflation to much faster levels if left unchecked.
The year-on-year inflation rate hit an average of 4.2 percent in the first half, keeping the official target of between 3.5 and 5.5 percent this year attainable. Projections by the government for the medium term say inflation may settle well within a benign range of three to five percent until 2014.
BSP Deputy Governor Diwa Guinigundo earlier said it would be counter-intuitive at the moment to be reducing interest rates, including that of the SDA. This is because the economy is recovering satisfactorily amid improving demand, and that too much liquidity in the system could lead to inflationary problems.
Meanwhile, the BSP stood pat on maintaining the SDA facility amid proposals for its abolition to compel banks to lend more.
According to the BSP, the SDA facility remains an important tool for conducting monetary policy and for managing liquidity in the economy, as it is one way to siphon off excess cash in the system.