BSP not looking at a particular ‘safe level’ for SDAs

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is not looking at a particular “safe level” for trillions of parked money in special deposit accounts (SDA) as it reiterated funds flowing out of the facility remains far from being inflationary.

 â€œThe reforms that we have implemented are basically aimed at making sure that the facility remains a monetary instrument rather than investment vehicle,” BSP Governor Amando Tetangco Jr. told reporters yesterday.

“Conditions may change, so you cannot really say if this (SDA level) is a safe level,” he said late Monday.

SDA deposits – banks’ and trust departments’ money with the central bank – have started coming down since the beginning of the year, hitting a five-month low of P1.799 trillion as of June 14.

According to BSP data, the current tally is about a tenth below idle funds peaked at P1.983 trillion in April 15, but remains more than seven percent up from P1.674 trillion at end of last year.

For Tetangco, the current level of SDA deposits – which dwindled after the BSP cut the return the facility offers to two percent from 3.5 percent – could still be absorbed by the economy despite the money supply hitting six-year high last May.

 â€œThe amount of liquidity is not causing inflationary pressures,” he explained.

At the same time, the BSP chief said current liquidity, which grew 16.3 percent in May, is “consistent with the requirements of the economy” for growth.

Economic expansion hit 7.8 percent in the first quarter, beating market expectations, as the fastest growing economy in Asia rode into a stable inflation of three percent.

Last week, BSP Deputy Governor Diwa Guinigundo said the Philippines is far from overheating, a scenario characterized by skyrocketing inflation at a time of robust growth.

The scenario worsens once for inflation cuts through the purchasing power of consumers and investors, thereby making growth unsustainable.  

Sought for comment, Emilio Neri Jr., lead economist at the Bank of the Philippine Islands, said the BSP is waiting how the market will respond to a number of measures imposed on the SDA facility.

One of them is the prohibition against singular investment management accounts, 30 percent of which should be withdrawn by this month before a complete phase-out in November.