Funds in SDAs hit lowest since June ’11

Money in the central bank’s special deposit accounts (SDAs) fell to a two-and-a-half-year low in the first week of December as the ban on individual investments in the investment window took effect, documents released this week showed.

The Bangko Sentral ng Pilipinas (BSP) said that money in the SDA facility dropped to P1.41 trillion as of December 6, the lowest since June 2011 when SDAs stood at P1.39 trillion.

The SDA window, which allows banks to park their funds to earn interest at the BSP, serves as one of the tools used by the monetary agency to mop up excess cash circulating in the economy to avoid inflationary pressures.

Cash in SDAs peaked last April to more than P2 trillion amid the availability of liquidity in the economy and the scarcity of investment options in the country. This led to massive losses for the central bank, which pays interest for every peso in the facility.

In 2012, the central bank’s losses hit a record high of P95.38 billion due mainly to the ballooning of funds parked by banks in SDAs. This was triple the losses the BSP booked in 2011. The BSP expects to lose less money this year due to the drop in SDA funds.

The cut in the amount of money in SDAs started when the BSP cut yields to a record low of 2 percent across all maturities. SDA yields were previously pegged at the same rate as the BSP’s benchmark overnight borrowing rate, which currently stands at 3.5 percent.

The BSP also introduced a ban from the SDA window of non-pooled funds in investment management accounts (IMA) held by banks for their clients. The BSP said 30 percent of the covered funds already in SDAs had to be removed by July. The remaining had to be removed by November.

The exit of fund from SDAs pushed up growth in domestic liquidity or the amount of money circulating in the economy by more than 30 percent from August to October—rates of growth that have not been seen in more than a decade.

Investors still have access to the BSP’s SDA window, but only through unified investment trust funds (UITF) or other similar instruments that pool funds from different investors.

BSP Governor Amando Tetangco Jr. said in a previous interview that elevated liquidity growth rates could persist until the latter part of 2014. However, this extra liquidity, which is a result of an extraordinary event rather than a growing trend due to loose monetary policies, is not expected to fuel price pressures.

The BSP expects inflation to average 2.9 percent this year, or slightly below the central bank’s target range of 3 to 5 percent. Next year, inflation is expected to average at 4.5 percent.