Peso dips as market takes in impact of reduced rates on SDAs

Photo taken from https://www.bsp.gov.ph

MANILA, Philippines—The peso weakened on the first trading day of the week as the impact of the reduced interest rate on special deposit accounts (SDAs) further sank in to market players.

The local currency closed at 40.91 against the US dollar on Monday, down by 25 centavos from Friday’s finish of 40.66:$.1

Intraday high hit 40.68:$1, while intraday low settled at 40.92:$1.

Volume of trade reached $1.203 billion from $953.959 million previously.

Traders said the announcement made by the Bangko Sentral ng Pilipinas last Thursday on the cut in SDA rates dampened appetite of some investors for pesos.

“The dollar has gotten stronger against many currencies because of improving outlook [on the US economy], but at the same time the market has digested the effect of the cut in the SDA rates,” Jonathan Ravelas, market strategist for Banco de Oro, told the Philippine Daily Inquirer.

The BSP announced last Thursday the reduction of rates on SDAs to 3 percent across the board, effective immediately. Previously, the SDA rates were set at premiums over the 3.5-percent overnight borrowing rate of the BSP.

Given their virtually risk-free nature, SDAs are deemed attractive investment venues. Some foreign investors, through their banks, were believed to still be investing their money in SDAs despite prohibition by the BSP against investments of foreign funds in these instruments.

With the cut in the rates, however, market players said appetite for SDAs might be dampened, thereby tempering demand for pesos.