BSP seen keeping policy rates steady

Monetary authorities are expected to keep policy rates at record lows this Thursday amid benign inflation pressures and the economy’s rapid growth.

This comes after statements by Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr., who earlier this week said the monetary board had enough tools at its disposal to address any sudden price shocks.

“Between now and the end of the year, we don’t see any change in the policy stance,” BDO chief market strategist Jonathan Ravelas said in an interview.

He said the economy has yet to completely absorb all of the liquidity the central bank has let out through the easing of its policy stance. Despite this, growth has accelerated to near record highs without leading to higher inflation.

Overnight borrowing and lending rates stand at record lows of 3.5 percent and 5.5 percent, respectively. At its last policy stance meeting in April, the BSP reduced the interest rate for special deposit accounts (SDA) to 2 percent to force banks to lend to the public instead of keeping their funds idle in BSP vaults.

Although he expected policy rates to stay unchanged, Ravelas said the BSP might decide to cut SDA rates for the fourth time this year since inflation remained stable, which gives space for more cash in the system.

For his part, Jose Emmanuel Hilado, executive vice president at Rizal Commercial Banking Corp., said SDA rates would likely remain unchanged in view of recent changes in regulations that limited the access of retail investors to the BSP facility.

The BSP recently announced that starting January 2014, only trust accounts and unit investment trust funds or UITFs would be allowed to put money in SDA accounts.

SDAs were earlier envisioned as a facility that the BSP could use to mop up excess liquidity that could stoke inflation pressures and choke the economy. Recently, however, investors have started to park more of their cash in SDA accounts, which offer higher yields than government securities and other low-risk paper.