SDA policy remains, BSP eyes no changes
The Bangko Sentral ng Pilipinas (BSP) does not plan to make any more policy changes in its special deposit account (SDA) facility even as adjustments have resulted to the targeted lower SDA volumes.
BSP Deputy Governor Diwa C. Guinigundo said the SDA revisions, which limited trust entities’ access to the facility, is not under review nor will it see any more adjustments for some time.
“I don’t think it is proper to reverse the Monetary Board’s decision,” said Guinigundo in an interview.
In November, 2013, the BSP capped banks’ trust departments access to the SDA facility. Under pooled funds, the central bank only permits unit investment trust funds as SDA-allowed trust accounts. SDAs, which are fixed term deposits by banks, and the reverse repurchase agreement (RRP) are substitutes for each other. In the early months of 2013, SDAs reached a peak of 1.9 trillion which alarmed the BSP.
But following the restrictions in SDAs which saw it fall to 1 trillion by the end of 2014, the central bank raised the interest rates on SDA twice last year (June and September) by 25 bps each from two percent to 2.5 percent for all tenors. The Monetary Board believed there was enough “solid economic activity” to warrant an increase in SDA price that will support monetary and credit conditions at the time.
Guinigundo said they will keep current SDA measures as is for now, finding it inappropriate to change policies while it is completing the interest rate corridor framework.
“If at all, we have to develop the RRP market (and that’s) what we will do,” he added. As of mid-April, SDA has dipped to 980.20 billion while RRPs have moved up to the 300 billion-level from 260 billion previously.
In a commentary, ING Bank echoed the consensus that the BSP monetary policy will remain on hold in the near term as it rationalizes its real effective rate. “(The) BSP is seeking to finalize the interest rate corridor that have been practically managing the system for a while now together with the issuance of BSP term deposit (which) raised expectations of policy actions,” said Joey Cuyegkeng, the bank’s senior economist in Manila.
“BSP is likely to introduce a new liquidity facility in the next few months,” speculated Cuyegkeng. He said the BSP’s term
deposit auction would provide BSP an added tool to manage liquidity. “This as part of the interest rate corridor would be under deliberation in the Monetary Board in the coming meetings. We could also see such auction implemented for the SDA to allow for some shifts in the term structure of the deposit facility and allow BSP to better manage liquidity.”
At the moment, the BSP is developing the RRP facility and set it up as the real effective rate in the open money market.
“We have to develop the RRP market by having more collaterals so that you can do open market operations through RRP and not through SDA,” Guinigundo said in a previous March interview.
The BSP borrows and lends to banks using government securities as collaterals. Money market instruments such as the RRPs and SDAs are shortterm trades conducted through interbank lending and borrowing. Presently, the market uses the overnight lending or repurchase rate as the ceiling and the SDA as the floor.
Guinigundo said developing the RRP further also leads up to the BSP’s eventual auctioning of RRPs through the use of the interest rate corridor.
It is a view shared by HSBC’s economist Trinh Nguyen who said that the market is looking forward to the streamlining for the RRP facility to make it more effective. “(The) central bank will try to make its policy rate more effective in the longer run,” said Nguyen.