Peso slightly down after news of BSP tightening special deposit account facility

MANILA, Philippines—The peso moved sideways on the first trading day of the week following reports that the Bangko Sentral ng Pilipinas may further rationalize its special deposit account facility.

“Rationalizing” is taken to mean making the SDA facility much more of a liquidity management tool by the BSP and less of an investment outlet. As such, the BSP is seen hinting at being poised to accommodate less investment in SDAs.

The local currency closed at 40.62 against the US dollar, down by 1.8 centavos from Friday’s finish of 40.602:$1.

Intraday high hit 40.615:$1, while intraday low settled at 40.645:$1.

Volume of trade reached a mere $475 million from $734.7 million previously.

For many fund owners, SDAs are one of the attractive fixed-income investment outlets given that SDA interest rates are higher than those on bank deposits and short-term government securities.

The BSP recently cut the interest rates on SDAs to a uniform rate of 3 percent. Previously, the rates were set at varying premiums above the central bank’s overnight borrowing rate of 3 percent.

BSP Governor Amando Tetangco Jr. said Friday that the central bank would like to further rationalize the SDA facility, a move that he said would align monetary policy in the country with international best practices.

The BSP’s intention to be less accommodating to SDA placements  seen by the market as discouraging foreign portfolio inflows, according to traders.