No change in key policy; SDA rate reset

INQUIRER FILE PHOTO

Monetary officials on Thursday decided not to hike benchmark interest rates, but saw it fit to reset the rate on special deposit accounts (SDA) to encourage banks to park more cash with the regulator.

The Bangko Sentral ng Pilipinas (BSP) arrived at this decision after it noted that inflation forecasts for this year and the next appeared to be moving closer to the top end of the official forecast range.

Consumer price inflation forecasts were raised to 4.4 percent and 3.7 percent for 2014 and 2015, respectively. The BSP wants to keep inflation between 3 and 5 percent for 2014, and 2 and 4 percent for 2015.

“The Monetary Board believes that solid domestic growth prospects allow some scope for a measured adjustment in the SDA rate to ensure that monetary and credit conditions continue to be appropriate,” BSP Governor Amando M. Tetangco Jr. said in a statement.

The BSP’s overnight borrowing and lending rates were kept at 3.5 and 5.5 percent, respectively. The record-low rates were set in October 2012 and there had been no change since then.

On the other hand, the SDA rate was raised by 25 basis points to 2.25 percent across all maturities.

Most analysts polled by the Inquirer this month expected the BSP’s Monetary Board to tighten policy settings for the third consecutive meeting this week. But no clear consensus was reached on how this would be done.

BSP Deputy Governor Diwa C. Guinigundo said the SDA rate hike addressed two issues: Above-normal growth in domestic liquidity and negative real interest rates offered by banks.

The hike in SDA rates would encourage banks to park more money with the central bank. This effectively would mop up excess liquidity circulating in the economy.

Also, banks will have to adjust the rate of their deposit accounts because of the change in the SDA rate, which promises higher returns from the BSP.