BSP maintains key rates, acts to contain inflation

By Des Ferriols
The Philippine Star 04/20/2007

The Bangko Sentral ng Pilipinas (BSP) decided yesterday to take steps to arrest the rapid growth in money supply, setting moves to mop up liquidity from the system by luring government deposits away from banks.

The Monetary Board (MB) decided to keep all its monetary policy settings unchanged, opting instead to impose new measures to address the rapid growth in domestic liquidity.

The new measures, according to the BSP, are expected to ultimately slow down the growth in domestic liquidity to below 20 percent, a level that the central bank said it considered "sustainable and not inflationary".

BSP Governor Amando M. Tetangco Jr. announced after the MB meeting that the overnight borrowing rate would stay at 7.5 percent and its overnight lending rate at 9.75 percent. The tiering scheme on bank placements with the BSP was also retained.

"We think that all our policy settings at this time are still appropriate," Tetangco said. "The recent price developments are consistent with the BSP’s and the market’s expectations of a generally benign inflation outlook."

However, Tetangco said the MB is still concerned over the strength of monetary growth which could build up inflationary pressures over the medium term.

To address the potential risks, Tetangco said the MB has decided to encourage government owned and controlled corporations especially the Government Service Insurance System (GSIS) and the Social Security System (SSS) to deposit their funds with the BSP.

GOCCs normally use government depository banks but Tetangco said the BSP is willing to offer them better terms for their deposits than they would normally get from banks.

"We still have to determine what rate we will offer them, we will be looking at the rates," Tetangco said.

In addition to luring GOCC deposits away from banks, the BSP also decided it would allow trust department of banks to deposit with the BSP and allow the Special Deposit Accounts (SDAs) of banks to be counted as alternative compliance with the liquidity floor requirements for government deposits.

This way, Tetangco said banks could use their SDA placements when calculating their liquidity floor compliance for government deposits. Normally, banks buy government securities to comply with this requirement.

 

http://www.philstar.com/philstar/NEWS200704200702.htm