BSP retains rates, adopts tiering plan

By Jun Vallecera
Reporter

THE Bangko Sentral ng Pilipinas on Thursday saw no need to adopt changes in monetary policy stance and kept the rates at which it borrows from or lends to banks unchanged at their current settings.
           
But because there are still residual risks that could push inflation higher going forward, the policy-making monetary board adopted a “tiering scheme” in which increasingly higher volumes are parked with the BSP the lower the interest they pay for them.
           
“In effect, this is an easing of our monetary policy stance given lower risks that inflation will rise in the future.
           
“But because certain risks remain, particularly oil prices, the MB decided to adopt the tiering mechanism,” BSP governor Amando Tetangco said.
           
This means the BSP will continue to pay interest of 7.5 percent for bank funds parked with them overnight and charge them 9.75 percent for same duration lending, he continued.
           
Tetangco said the first P5 billion worth of funds brought to the BSP’s special deposit account window would be paid interest of 7.5 percent, representing their published borrowing rate.
           
The next P5 billion gets paid interest of only 5.5 percent and anything in excess of P10 billion gets only 3.5 percent, he stressed.
           
The last time the BSP adopted the same tiering scheme was in mid-2003 until 2004, when banks would rather take their money to the central bank rather than lend them to private sector borrowers.
           
“This is a signal for the banks that they should lend more to the private sector rather than bring their money to us,” Tetangco said.
           
Banks have not been lending as much as they used to prior to 1997 as soured loans’ incidence picked up and bank loans even contracted on certain months.
           
Bank loans in July, for instance, grew by just 2.5 percent from 4.3 percent the previous August.
           
According to Tetangco, the freezing of their policy rates at current settings betrays the monetary board’s preference not to cut them right away.
           
“This is an intermediate stage and we will assess the situation again at the next policy rate setting meeting,” he said.
           
That meeting, the last for 2006, had been set just six weeks away on December 15.
           
He said the current outlook for inflation 15 or 18 months down the line “remains favorable” and that target inflation of 4-5 percent next year remains the official goal.

Business Mirror
November 3, 2006
http://www.businessmirror.com.ph/front03.php