Liquid financial system to persist for over a year
Abnormally-high growth rates in the country’s money supply is expected to last for over a year before slowing down to a more manageable pace, the Bangko Sentral ng Pilipinas (BSP) said.
This prolonged elevation in domestic liquidity growth will be caused mainly by banks pulling out their depositors’ funds from the BSP’s special deposit accounts (SDA), resulting in extra cash circulating in the local economy.
However, BSP assured that this extra cash, owned by depositors with low appetite for risk, would not fuel spikes in consumer prices.
“We are not concerned about that. We know the market is feeling it; we are conscious of that. But we know that this is temporary,” BSP Governor Amando M. Tetangco Jr. said at the weekend.
“SDA investors are not the same as those that invest in real estate,” Tetangco said, noting that most people that placed money in the BSP facility were content with low returns, as long as their money was safe.
Earlier this year, the central bank ordered all banks to gradually withdraw all individual investments in SDAs. Under the new BSP restrictions, banks were required to remove 30 percent of these nonpooled funds by July, while the remaining 70 percent should be gone by November.
Most of the funds pulled out of SDAs were later moved to time deposit accounts with local banks. Funds in time deposits are counted when computing for domestic liquidity while funds in SDAs are not.
“It will start to slow down in the second semester of next year and toward the end of the year, we’ll be back to a more normal pace,” Tetangco said. He said an average growth of between 10 and 12 percent in domestic liquidity every year would be a more manageable rate.
The SDA was originally conceived as a tool the BSP could use to siphon off excess cash from the economy to keep these funds from excessively fueling demand and sending consumer prices rising.
But with the availability of cheap money and the scarcity of other low-risk alternatives, investors decided to place cash in SDA, even though yields were at a record low of 2 percent across all maturities.