EXCESS bank funds, marked as special deposits, at the Bangko Sentral ng Pilipinas (BSP) showed an increase by some P20 billion in July, totaling P1.155 trillion.
The additional deposits highlight the relative ease by which the BSP turns on the monetary levers and so-called excess liquidity in the system quickly flows back to the central bank’s vaults, where they may no longer harm the system in the form of inflation.
The additional deposits came in the wake of the June 19 rate-setting meeting of the Monetary Board of the BSP, which refused to hike the policy rates but made a quarter-point adjustment to the special deposit account (SDA) rate to lure back so-called excess funds in the system seen harming the country’s potential to expand as targeted by the economic managers this year.
The 25-basis-point SDA rate hike effectively brought the interest rate on SDAs from 2 percent to 2.25 percent. Prior to this, SDAs totaled only P1.135 trillion.
This means some P20 billion moved back the central bank’s vaults in a span of just six weeks.
Economists cited several reasons why SDAs show minimal movement after the central bank made the appropriate adjustments. One was the fine-tuning operation the central bank made to push foreign bank participation and so-called investment management accounts out of the SDA window and into the real economy where they may fund productive undertakings.
“These earlier policies drove deposits out from SDA to other alternatives like real estate, mutual funds, stocks, corporate bonds, bank Tier-2 issues, government bonds, etc. With these funds already benefitting from higher yields in these assets classes, it will not be that quick for them to return to SDAs,” First Metro Investment Corp. Vice President and Head of Treasury Group Reynaldo Montalbo Jr. said in an e-mailed response to the BusinessMirror.
Montalbo said the 25 basis-point hike was not attractive enough for investors to redeploy investments from one asset class to SDA-linked deposits.
Security Bank economist Patrick Ella said a number of other preferences for investments were available prior to the hike so that a lot of money was tied up elsewhere.
“Expect [that] once dividend by large caps in the market has been paid out, you should see a return of these funds to the SDA,” Ella said.