Bangko Sentral lowers SDA rates

The Bangko Sentral ng Pilipinas has cut interest rates on funds placed in its special deposit account (SDA) facility, a move seen to push banks to withdraw portions of their more than P1 trillion in idle cash so these could be used for lending.

The reduction in the SDA rates was 3.125 basis points across all maturities, the BSP announced Friday.

The one-week SDA rate was cut to 4.03125 percent from 4.0625 percent; the two-week rate to 4.09375 percent from 4.125 percent; and the one-month rate to 4.15625 percent from 4.1875 percent.

“The adjustment in the SDA rates is to fine-tune the pricing of the product,” BSP Governor Amando Tetangco Jr. said, adding that the rate reduction was in keeping with the decline in interest rates globally.

As of end-June, documents from the central bank showed that funds placed in the SDA facility stood at P1.6 trillion.

The cut in the rates followed criticism against the huge amount of funds parked at the SDA facility. Economists said some of the money must be used by banks to increase their lending. Banks could contribute to boosting economic growth if they would use their excess cash to finance corporate expansion or new businesses.

Banks, however, have remained attracted to placing excess money in the SDA facility given its ability to help them generate significant interest income with virtually no risk.

The country’s banking sector actually has been lending more to consumers and enterprises, with the outstanding loans of universal and commercial banks growing at a double-digit pace. Still, economists argued that there was scope for banks to further increase lending given the significant cash parked in the SDA and the enormous financing requirement of the economy.

Economists said more loans might be used to fund infrastructure projects, which the country needed to better compete with its neighbors in terms of cornering foreign direct investments.

Although the Philippines has been attracting significant foreign capital flows, these were mostly short-term, portfolio funds. Economists said the country needed more FDIs to generate jobs and help uplift incomes of poor households.