Last Friday, the market again ended in negative territory after it started to slide down on Tuesday.
This seemed to be the result of the announcement (after trading hours on Thursday) by the Monetary Board, the policy making body of the Bangko Sentral ng Pilipinas (BSP), of its decision to raise both the overnight interest rates and the special deposit account (SDA) rate as part of its strategy “to combat inflation pressures threatening to derail the country’s carefully calibrated price and growth goals.”
The Monetary Board raised key interest rates by 25 basis points to 4 percent, and the SDA rate by another 25 basis points to 2.5 percent.
The overnight rate is the rate of interest the central bank charges a financial institution for short-term placements. Likewise, it is also basis for which a depository institution lends funds to another depository institution.
SDAs are not your savings or time deposit accounts but are short-term placements offered by the BSP to local banks, in which you can also invest indirectly through your depository bank. It’s the mechanism the central bank use to address inflation as it serves to manage liquidity or siphon off cash from the market.
When banks and other financial institution put more of their cash in SDAs, the supply of money in the market will decrease. This will, in turn, helps mitigate inflation.
SDAs have short-term maturity periods—usually within a month. They are attractive because they have better yields than savings and time deposit accounts. However, they are not covered by the Philippine Deposit Insurance Corp. Nevertheless, they are considered safe and virtually risk-free investments because the placements are supported by the BSP.
Latest CSR program
Today, affiliate Unilab Foundation Inc. of United Laboratories Inc. (Unilab) is launching a book about the inclusion of persons with disabilities (PWD) in the job market—the result of a joint effort with the De La Salle University Social Development Research Center.
The law concerning the rights of PWDs is covered by Republic Act No. 7277 or the Magna Carta for Disabled Persons of 1992, specifically Section 32. As provided by the law, it “ensures equal opportunities for suitable employment of PWDs as their able-bodied counterparts.”
There have been a number of policies, programs and services already implemented by government. Despite these past efforts, however, promoting the employment for this segment of the population still needs improvement.
Thus, while the book is another step by the company in its effort to enrich its corporate social responsibility (CSR) program, it is also a significant study guide to inspire, encourage and move to action other corporations to help foster a more inclusive environment for PWDs in Philippine business.
The book launching will be held at the J.Y. Campos Hall B of Unilab’s Bayanihan Center at 2 o’clock this afternoon.
US market
Like what our local investors did before the announcement of the hike on interest rates, Wall Street investors stayed out of the market last Friday, sending the Dow Jones Industrial Average, S&P 500 and Nasdaq lower to end their five-week stretch of gains.
US investors were similarly disturbed by speculations the Federal Reserve will raise interest rates sooner than estimated, in the face of reports that retail sales climbed at the fastest pace in four months.
On Wednesday, the Fed will have a scheduled meeting. It will hold a discussion on ending the quantitative easing (QE) program and tackle the subject of when interest rates will be raised.
The consensus among market participants and observers, is that the Fed will finally hike interest rates for the first time since the summer of 2006.
Bond traders speculate the hike will come next summer, at the earliest. For those more anticipative, they expect it to happen in March.
But one economic commentator speculates the Fed might just raise interest rates by the end of the year, or possibly January 2015.
Bottom line spin
Last week was practically spent in waiting for the decision of the Monetary Board that trading was lackluster from Tuesday to Thursday.
The market dropped to 7,201.88 by the close of trading on Friday following the said decision. But as can be noted, the market’s loss for the day was only a fraction of a point equivalent to 0.18 or 0.002 percent.
Additionally, despite the market’s three consecutive days of losses from Tuesday to Thursday, its weekly loss only amounted to 61.70 points or 0.65 percent.
With these results, the decision of the Monetary Board seemed to have been received more positively than negatively, after all.
Following the market’s slow but sure climb to breach 7,200—amid developments that may propel the country’s economic growth higher—the market may just be on its way up, slowly but surely.
(The writer is a licensed stockbroker of Eagle Equities, Inc.. You may reach the Market Rider at marketrider@inquirer.com.ph , densomera@msn.com or at www.kapitaltek.com)