Bangko Sentral keeps SDA, key rates steady

The Bangko Sentral ng Pilipinas on Thursday kept the interest rates on special deposit accounts (SDAs) as well as those for its overnight borrowing and lending unchanged.

The SDA rate remains at 2 percent, while the overnight borrowing and lending rates are still at 3.5 and 5.5 percent, respectively. All rates are the lowest recorded.

With the decision, the BSP effectively took a pause from slashing the SDA rate since the start of the year. The central bank reduced the SDA rate three times since January by a total of 150 basis points.

The BSP decided to cut the SDA rate to encourage the development of the country’s capital markets and boost lending to enterprises.

Monetary officials at the time hoped that the funds to be withdrawn from the SDA facility would be used by market players to lend more to businesses and create new investment products.

Apart from the cuts in the SDA rate, other regulations were likewise implemented earlier to encourage banks to take their funds out of the SDA facility. One such directive is to disqualify funds placed in investment management accounts from being invested in the SDA.

In the first quarter, bank lending grew by a double-digit pace while the economy, measured in terms of gross domestic product, expanded year-on-year by a robust 7.8 percent. This was the fastest growth rate in Asia, exceeding even China’s 7.7 percent.

Citing these developments, the BSP said it would first let the economy absorb the effects of the prior rate cuts before making any further move related to interest rates.

By keeping the policy settings steady, the BSP may get “to assess the impact of recent fine-tuning in monetary operations,” BSP Governor Amando Tetangco Jr. said in a press conference yesterday immediately after the policy-setting meeting of the central bank’s Monetary Board.

The BSP remains committed to keeping inflation in the country manageable and within target, Tetangco said. The government expects inflation to settle between 3 and 5 percent for this year and the next.

“The Monetary Board is of the view that the manageable inflation outlook and robust domestic growth provide scope to keep policy rates steady for the time being…. The BSP will continue to pay close attention to evolving price and output conditions as well as market developments to ensure that policy settings remain consistent with safeguarding price and financial stability while being supportive of sustained and balanced economic growth,” he said.

In the first five months of the year, inflation averaged at 3 percent, the National Statistics Office earlier reported.

BSP Deputy Governor Diwa Guinigundo said that, based on the latest central bank estimates, inflation would likely average at 3.1 percent in 2013, 3.6 percent in 2014, and 3.4 percent in 2015.