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By Maricel E. Burgonio, Reporter
THE Bangko Sentral ng Pilipinas (BSP)
may tweak its monetary policy to avoid conditions of prolonged
negative real interest rates.
Speaking before the Trust
Officers Association of the Philippines, BSP Governor Amando M.
Tetangco Jr. said prolonged negative real interest rates, which
involve below-inflation benchmark 91-day Treasury bill rates,
distort investments and consumption signals.
“The BSP is very focused on
this issue and is committed to adjust its policy settings, its
instruments and tactics with agility . . . as circumstances
warrant,” Tetangco said.
The yield of the 91-day T-bill,
which banks use in pricing their loans, fell to a new record low of
2.860 percent last Monday after climbing to 2.998 percent on March
19.
T-bills are subject to 20-percent
withholding tax, so with consumer prices rising by 2.6 percent in
February, investors stand to make no gains from investing in these
short-term government IOUs.
With benchmark rates dropping,
investors are wont to search for alternative investments, Tetangco
said.
This was seen in how deposits
have grown vis-à-vis trust accounts in the last five years. Trust
accounts had a growth rate of 47 percent versus 61 percent for
deposit accounts.
Last year banks reported P3.8
trillion in deposit liabilities as against P860 billion in trust
account liabilities.
Tetangco said the BSP’s
emerging challenge is to maintain financial stability despite huge
inflows of foreign money, which has fueled a rise in domestic money
supply and threatened to stoke expectations that prices would rise
faster than earlier forecast.
“We realize the economy itself
if undergoing structural change. Therefore, we are conscious that
our policy reaction should not be dogmatic,” Tetangco said.
The Philippines’ relative
success in reining in its budget deficit has occasioned higher
investment flows from abroad, which along with record inflows of
overseas Filipino worker (OFW) remittances, has driven a surge in
domestic money supply that risks fueling inflation.
In the first two months of the
year, deposits lodged with the country’s foreign currency deposit
units (FCDU) went up year on year by $1.778 billion to $17.713
billion.
This was largely due to an
increase in OFW remittances.
The growth in FCDU deposit
liabilities is mainly attributed from the increase of deposits of
the overseas Filipino workers (OFWs).
Money sent home by OFWs is
expected to reach $14.7 billion this year from $12.7 billion last
year. Last January workers abroad sent home $1.10 billion,
sustaining the $1-billion mark for the past nine months.
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