The Bangko Sentral ng Pilipinas is considering a further reduction in the interest rate on the special deposit accounts (SDAs), noting that there is still room to lower it despite the significant cut made in January.
The reduction implemented at the start of the year and another possible cut soon are meant to align the interest rate on SDAs with international standards, according to the BSP.
In some advanced economies and emerging markets, it said, interest rates on deposit accounts are lower than the key policy rates of central banks.
Last month, the BSP cut the interest rate on SDAs to a uniform yield of 3 percent. Previously, the SDA rates were set at ranges above the central bank’s key policy rate, which currently stands at 3.5 percent, depending on their maturity.
BSP Deputy Governor Diwa Guinigundo said monetary officials were studying whether a further reduction in the SDA rate would indeed be a prudent move. So far, the central bank seemed to lean toward favoring another cut in the SDA rate because of favorable economic developments.
“We will review whether there is scope for further reduction of the SDA rate, considering that the economy is doing very well, that inflation is benign, that bank lending remains strong, and that domestic liquidity remains appropriate with the pace of economic activity,” Guinigundo said.
Another cut in the SDA rate will further reduce the huge cost of interest payments incurred by the BSP. Some P1.8 trillion in funds are still parked with the central bank as SDA placements. SDAs are deemed attractive by banks and fund owners because the rate—even with the cut in January—is still higher than interest rates on other risk-free instruments such as bank deposits and government securities.
Guinigundo stressed that changes in the SDA rate should not be viewed as adjustments in the BSP’s monetary policy stance. He explained that a cut in the SDA rate would not signal the central bank’s response to current price movements and economic growth nor its outlook on future inflation and economic performance.
He said the key policy rate (which is paid by the BSP on overnight deposits by banks) was what mainly signals the BSP’s monetary policy stance. For instance, he said, if the BSP kept the key policy rate at 3.5 percent, this meant it still expected inflation and economic growth to remain within targets.