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| MONETARY BOARD FINDS WAY OUT OF POLICY RATES DILEMMA |
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| By Jun Vallecera |
| Reporter |
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| THE monetary authorities could neither raise policy rates nor move them down without sending the wrong signal, but they resolved the dilemma on Thursday with the introduction of new measures designed to encourage financial institutions to place excess funds with the Bangko Sentral ng Pilipinas. Raising the so-called overnight rates of the central bank is a virtual admission that inflation and its outlook was a threat going forward, experts explained. Moving it down, on the other hand, sends the signal the BSP was not concerned at all that peso liquidity levels are rising steadily and at a pace considered inflationary if allowed to persist over a 12-month stretch. Since it could not adopt one in favor of the other, BSP Governor Amando M. Tetangco Jr. and six other members of the policymaking Monetary Board adopted the next best thing: get the previously non-BSP depositors to place their money with them. The target institutions include the Government Service Insurance System, the Social Security System, the various government-owned or -controlled corporations and the trust units of banks. Tetangco said enticing the GFIs, GOCCs and the state-owned pension funds is a matter of giving them interest rates so attractive they have no choice but to bring their money to the BSP and solve its problem of rising liquidity sloshing around the system—and possibly creating inflation troubles down the line. “Pricing will be discussed with the GSIS and the SSS to encourage them to come,” he said, without elaborating what rates are considered attractive. The Monetary Board also finally gave in to the long- standing request of the various trust units to allow them to deposit some of their funds with the BSP. Beginning May 10 when all three measures take effect, the Trust Officers Association of the At the moment, trust units are not allowed to make placements at the multibillion-peso overnight market where one generates returns as high as 7.5 percent in just 24 hours. Additionally, the Monetary Board also now recognizes the special deposits accounts of banks as alternative compliance to the strict requirements on minimum peso liquidity levels that each bank must maintain. SDAs are cash deposits banks make with the BSP, and treating them as alternative liquidity compliance ensures the money stays safely with the BSP and does not create liquidity havoc. Needless to say, the BSP kept its overnight borrowing rate frozen at 7.5 percent and its overnight lending rate still at 9.75 percent. |
http://www.businessmirror.com.ph/0420&212007/headlines01.html
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