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BSP Governor Amando M. Tetangco Jr. said that to address the "potential risk" in liquidity build-up, they will now allow the special deposit account (SDA) placements of banks as "alternative compliance with the liquidity floor requirements for government deposits." The Monetary Board also changed a previous rule to allow banks’ trust departments to deposit funds with the central bank and lastly, BSP said it is "encouraging" and in a voluntary basis, that government social security institutions such as the Government Service Insurance System (GSIS) and the Social Security System (SSS) and government-owned and controlled corporations (GOCCs) to deposit funds with the BSP. The new measures will take effect on May 10. According to Tetangco, "while liquidity is not a concern at present, the Monetary Board believed that strong monetary growth could build up inflationary pressures over the medium term. "(We) will continue to monitor closely the evolving monetary conditions in order to safeguard price stability and provide the macroeconomic environment supportive of a sustainable economic growth," said Tetangco. "Growth in domestic liquidity has been strong and this could persist given the prospect for sustained foreign exchange inflows." During yesterday’s BSP policy meeting, the Monetary Board also approved a "no-change" policy, and will maintain interest rates at 7.5 percent for the overnight borrowing or reverse repurchase (RRP) rate and 9.75 percent for the overnight lending or repurchase rate (RP). The tiering system on bank placements was also retained. Tetangco said the ongoing refinements to open market operations will specifically address the changing risk appetite and requirements of the investors. "(This is to respond) to the shifting investor risk appetite and preferences." He said the BSP wants to be "more responsive to emerging domestic and global liquidity situations." Bankers Association of the Philippines (BAP) executive director Leonilo "Topper" Coronel said the intent is to have additional monetary measures to "update" BSP open market operations. As for the SDAs, Coronel said the BSP rules on SDAs has been "restrictive in the sense that it’s only for the banks. (But) the BSP now wants to include or open that to the public, to widen the scope." The central bank’s policy instruments are used to influence banks’ holdings of excess reserves, and thus control the level of liquidity in the market. In adopting monetary policy instruments, BSP can adjust short-term policy interest rates or conduct open market operations. The BSP’s SDAs, for example, which are maintained by banks and parked with the central bank to earn interests, is an open market operation. However it is deemed too restrictive and not all banks have the expertise to maintain SDAs. SDAs have different terms: Six months is the longest at 8 percent, 3 months have interests of 7.75 percent and one-month SDAs have 7 percent. |
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