BSP prohibits foreign funds from being parked in SDA

MANILA, Philippines—The Bangko Sentral ng Pilipinas has prohibited banks from putting funds owned by their foreign clients in the special depository account (SDA) facility, in a bid to arrest currency speculation that has been blamed for the recent appreciation of the peso.

According to the regulation approved last Thursday by the Monetary Board of the BSP, banks placing funds in the SDA facility of the central bank will be required to submit a notarized certification saying the money only came from investors residing in the country.

In other words, the banks must attest that none of the funds came either directly or indirectly from nonresidents.

Banks park their excess funds in the SDA facility, which currently has about P1.6 trillion in deposits, to generate interest income.

BSP Governor Amando Tetangco Jr. said the SDA facility is meant solely to prevent too much money from circulating within the economy. This is to keep growth in demand and increase in consumer prices within manageable levels.

The facility, therefore, should not accommodate speculative, foreign funds, he said.

“While the SDA facility is principally a tool for managing excess liquidity, it has become a possible entry point for foreign funds to participate in price actions in the dollar-peso market,” Tetangco told reporters Saturday.

The peso last week broke into the 41-to-a-dollar territory, hitting a new four-year high of 41.68 against the greenback on July 5.

This came after the peso already posted the fastest pace of appreciation against the US dollar in the first half of the year among major currencies in Asia-Pacific.

The peso rose by 4.33 percent against the US dollar in the first half.

In the same period, the Malaysian ringgit rose by 0.4 percent against the greenback, Thailand baht by 0.44 percent, Australian dollar by 1.42 percent, Singapore dollar by 2.7 percent and New Zealand dollar by 4.18 percent.

On the other hand, the Japanese yen, Indonesia rupiah and Indian rupee depreciated against the US dollar.

The BSP said it does not have a bias in favor of a strong or weak peso, but said a sharp and sudden volatility—whether appreciation or depreciation—should be avoided because sudden movements hurt the economy.

It said the foreign-exchange needs of all sectors of the economy should be balanced.

The appreciation of the peso hurts the export sector because this makes Philippine-made goods more expensive in dollar terms, and thus less cost-competitive in the global goods market.

The depreciation of the peso, on the other hand, makes imports more expensive and thus adversely affects importers.