Money in central bank special deposit accounts (SDA) fell to its lowest level for the year due to the withdrawal of non-pooled funds due to recent regulatory restrictions.
Data from the Bangko Sentral ng Pilipinas (BSP) showed money in SDAs fell to P1.627 trillion at the end of August, lower than the P1.674 trillion the week before. This was also lower than the peak of P1.92 trillion in February.
“This is still part of the winding down process of the SDAs,” BSP Deputy Governor Diwa C. Guinigundo said.
The exit of funds from SDAs was tagged as one of the key reasons for the record growth in domestic liquidity in July. Domestic liquidity or M3 rose by 30.1 percent in July, the highest increase in 10 years.
Guinigundo earlier said the money in SDAs were transferred to either time deposits or other instruments by banks. Eventually, these funds will make their way into the economy in the form of loans to businesses and households—helping fuel economic growth.
“M3 growth rates are expected to decelerate once these adjustments have been completed. A temporary period of high M3 growth is therefore not expected to translate into significant inflationary pressures,” the BSP said in a previous statement.
“At the same time, the ample availability of credit should facilitate investment and help support an increase in the economy’s productive capacity, thus tempering price pressures,” the bank added.
SDAs were envisioned as a tool that the BSP could use to mop up excess liquidity from the economy to curb inflation pressures without having to touch key policy rates.
However, with the government’s improved fiscal position pushing down yields for state-issued IOUs, local banks resorted to parking depositors’ cash in SDA accounts as they searched for short-term investments that paid higher returns.
The build-up in SDA funds also came amid the slow implementation of the Aquino administration’s flagship Public-Private Partnership (PPP) infrastructure program. Funds originally meant for big-ticket infrastructure projects were parked in SDAs instead.
By the end of July, 30 percent of individual deposits should be taken out of SDAs while the rest should be out by November.