Central bank defends special deposit accounts

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) defended its decision to keep special deposit accounts (SDA), saying it will continue paying high interest to institutional investors as long as there was demand. This was announced on Monday by BSP deputy governor Diwa C. Guinigundo, who attempted to defuse criticism that the SDAs were making less funds available for companies. By paying investors high interest rates, SDAs – as a monetary tool –siphoned off cash from the financial system, reducing liquidity and thereby cutting inflation risks. There were no indications that the need for SDA facilities were on the wane, Guinigundo said. Shuttering the SDA facility would be equivalent to a major reduction in interest rates, a move that would release more funds into the system that has already been awash in liquidity ever since the BSP cut rates in December. Some P500 billion in liquidity has already been made available for companies and borrowers especially after the BSP imposed consecutive rate reductions and eased deposit reserve requirements. Treasury bills have been lower than the BSP’s overnight rates, making the SDA more attractive to investors. While T-bills – especially the benchmark 91-day debt paper – helps government raise cash for its short-term needs, investors prefer putting their money in SDAs whose interest is government guaranteed. The BSP’s policies covering the SDA would be market-driven, depending on demand, Guinigundo said. “If there is demand for more liquidity, banks would naturally pull out their funds from the SDA," Guinigundo pointed out. “We believe that the market continues to work as a signaling device so we keep an eye on that before moving anything." For his part, BSP Governor Amando M. Tetangco Jr. said that releasing funds into the system makes cheap money available, allowing economic activities in the country to continue. - GMANews.TV