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By Chino Leyco, Reporter
THE Bangko Sentral ng Pilipinas (BSP) on
Thursday gave in to pressure for limits to placements in its special
deposit account, after monetary authorities decided to “refine”
this facility, which has been offering more attractive rates, thus
preventing the Bureau of Treasury from securing short-term
borrowings through regular auctions.
In a statement, the BSP said the Monetary Board
decided to keep its key policy rates at 5 and 7 percent for the
overnight borrowing and lending windows, citing risks to inflation
this year on the back of skyrocketing oil and food prices worldwide.
Price increases accelerated to a 16-month high last February on
record prices of those commodities.
The BSP said the inflation outlook for next year
however remains consistent with an earlier forecast of 3.5 percent,
plus or minus one percentage point. For this year, it ruled out any
impact current monetary policy would have on price increases.
Despite keeping its policy rates steady, the BSP
however decided to close the existing windows for two-, three- and
six-month tenors of its SDA. Monetary authorities also reduced the
rates on the remaining tenors of this facility, which traders have
blamed for the government’s failure to raise short-term money
through the treasury bureau’s regular auctions.
Banks and other investors had been trying to bid
up rates during the auctions for Treasury bills and bonds to
approximate the yields they have been enjoying from tapping the
central bank’s SDA.
Given the throwaway bids during auctions, the
treasury bureau decided to embark on negotiated sales of government
debt papers. Government securities eligible dealers as well as the
BSP had warned that such a move would go against the principles of
transparency and price-discovery that support the auction system.
The treasury bureau however said the move would
allow the government to secure short-term money without giving in to
banks’ pressure to raise rates on these borrowings. The low
interest-rate regime has allowed the government to improve its
fiscal position, ending last year with a record P9.4 billion budget
deficit, or way below the P63-billion ceiling set for the period.
For this year, the government is hard-pressed
meeting its objective of balancing its budget, as its main revenue
agencies already warned that collection targets are too high.
In deciding on the changes to its SDA, the BSP
said this move will “ensure that banks’ loanable funds remain
adequate to meet the requirements of the expanding economy, [adding]
encouraging banks to lend more will help sustain the strengthening
of most demand indicators and will be consistent with the forecast
for continued strong economic activity.”
“Even [if] we remove the [shorter-tenor] SDA,
we expect that [funds] would either shift to remaining windows, or
to other instruments like GS,” BSP Deputy Gov. Diwa C. Guinigundo
said, referring to government securities such as T-bills and bonds.
“It’s a move really meant to encourage
loanable funds made available to the general public particularly
business. In doing so, we are also addressing the supply condition,
or the supply situation, by releasing some of these liquidity from
the short term tenors of the SDA,” he added.
Since last year, economists and market players
had been egging on the BSP to wind down its SDA since this has
discouraged investors from placing their money in other instruments.
The central bank, however, had been averse to
adjusting its SDA rates, as the facility has allowed monetary
authorities to siphon off excess liquidity that threatens to stoke
higher inflation.
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