^

BSP hints at SDA rate hike

Kathleen A. Martin (The Philippine Star) - March 23, 2014 - 12:00am

MANILA, Philippines - A special deposit account (SDA) interest rate hike may be in the offing next week after the Bangko Sentral ng Pilipinas hinted on a tighter monetary policy, two banks said in separate research notes.

UK-based Barclays, in a research note, said it expects the BSP’s Monetary Board to adjust the SDA interest rates or the reserve requirement ratio for banks on its upcoming policy meetings.

“Increased hawkishness suggests the BSP’s preference is to move pre-emptively. With BSP watchful on liquidity, we believe a hike to the SDA rate or RRR is likely at the May policy meeting, with some risk of adjustment on  March 27,” Barclays said.

The Monetary Board will be revisiting policy settings next on March 27 and May 8.

The central bank last year cut SDA rates by a total of 150 basis points to two percent in hopes of flushing out money from the facility meant to mop up liquidity in the system and divert these funds to economic activities.

The reserve requirement ratio, meanwhile, stands at 18 percent and has been unchanged since February 2012. This number refers to how much as a percentage of current deposits banks need to keep  with the central bank.

Jun Trinidad, economist at Citi, said in a separate research note the firm also expects the BSP to increase SDA rates by 25 basis points to “kick-off” a sequence of tightening actions.

“We sense policy makers’ bias would be directed at prioritizing the SDA rate in their initial tightening move while leaving the overnight rate unchanged,” Trinidad said.

“Key driver would be excess liquidity, in which broad-money growth exceeding 30 percent over the past months hasn’t wavered,” he continued.

M3, the broadest measure of liquidity, has been rising above 30 percent since July last year. Most recent data showed M3 grew 38.6 percent in January, the fastest pace ever recorded.

Trinidad added Citi sees the central bank hiking SDA rates by a total of 100 basis points, while overnight rates will be increased by a total of 50 basis points.

Barclays, for its part, expects the BSP to hike key policy rates by 25 basis points in the second quarter and by another 25 basis points in the third quarter.

Overnight borrowing and overnight lending rates have been kept at 3.5 percent and 5.5 percent, respectively, since October 2012.

BSP Governor Amando M. Tetangco Jr. last week hinted of looming tightening of monetary policy after the US Federal Reserve announced interest rates may rise sooner than expected.

Tetangco stressed “early measured adjustments” in monetary policy is seen “ideal” as gradual movements would be less disruptive to the economy.

He made the comment after the Fed delivered another $10-billion cut in its monthly asset purchases to $55 billion, and announced it would also consider the pace and progress of unemployment and inflation targets in determining an interest rate hike.

 

BANGKO SENTRAL BARCLAYS CITI FEDERAL RESERVE GOVERNOR AMANDO M JUN TRINIDAD MONETARY BOARD POLICY RATES
  • Latest
  • Trending
Latest
Are you sure you want to log out?
X
Login

Philstar.com is one of the most vibrant, opinionated, discerning communities of readers on cyberspace. With your meaningful insights, help shape the stories that can shape the country. Sign up now!

FORGOT PASSWORD?
SIGN IN
or sign in with