MANILA, Philippines - Funds parked in the vault of the Bangko Sentral ng Pilipinas (BSP) in the form of special deposit accounts (SDAs) rose 34 percent last year as investors continued to seek high yielding investment instruments due to a lack of major infrastructure and development projects in the country.
Latest data from the BSP showed SDAs reached P1.66 trillion last year or P420 billion higher than the P1.24 trillion booked in 2010.
The SDA facility consists of fixed-term deposits by banks and by trust entities of banks and non-bank financial institutions with the BSP. It was introduced in November 1998 to enable the BSP to expand its toolkit in liquidity management.
In April 2007, the BSP expanded access to the SDA facility by allowing trust entities to deposit in the SDA facility in order to better manage liquidity in the face of strong foreign exchange inflows.
SDAs widened the scope of funds that could be deposited to the BSP and the central bank resorted to the use of SDAs after it ran out of government securities to conduct its open market operations.
SDA interest rates were then set at a high-enough level, outbidding the private sector for securities up to the volume needed in mopping up liquidity
As a result, the BSP has been posting huge losses arising from the payment on higher interest on SDA placements.
On the other hand, placements under the central bank’s reverse repurchase window inched up by 1.9 percent to P290.72 billion in 2011 from P285.14 billion in 2010.
Latest statistics showed that the amount of money circulating in the domestic economy or M3 grew at a slower pace of 6.9 percent in October to P4.305 trillion after monetary authorities imposed a higher reserve requirement ratio to siphon off excess liquidity from the financial system.
Liquidity growth is one of the important vehicles considered in determining the central bank’s monetary policy. At a time when the economy is booming and money supply is expanding rapidly, the central bank would normally step in to mop-up in order to ensure that inflation would not surge.
- By Lawrence Agcaoili