Bangko Sentral cuts SDA yield to 2.5%, keeps policy rates on hold

(Updated 5:14 p.m.) The Bangko Sentral ng Pilipinas has kept policy rates on hold as it cut rates for the Special Deposit Accounts (SDAs) to 2.5 percent in order to funnel the unutilized funds to more productive uses in the economy, the central bank's head announced Thursday. "The Monetary Board decided to maintain the BSP's key policy rates," Bangko Sentral governor Amando Tetangco, Jr. told reporters. Policy rates remained untouched at 3.5 percent for overnight borrowing and 5.5 percent for overnight lending since October last year. "Following its previous decision to rationalize the Special Deposit Account facility in January, the Monetary Board further reduced interest rates on the... facility by 50 basis points to 2.5 percent across all tenors," Tetangco said. Last January, the Monetary Board rationalized rates of its SDA facility—a tool used by the central bank to mop up excess liquidity—to 3 percent. Previously, SDA rates were priced at a premium over policy rates. "The reduction in the SDA rate is consistent with the BSP's continuing efforts to fine-tune the operation of its monetary policy tools," Tetangco said. Bangko Sentral assistant governor Cyd Tuano-Amador said the decision will allow "liquidity to be pushed out of the SDA window to fund productive uses capital market players to develop other investment instruments, which are higher yielding and low risk." Amador, likewise, noted that the decision to cut rates now was in line with manageable inflation and good growth dynamics. She added that this will likely result in "slightly below P20 billion" savings in interest payments in the next 12 months. BSP officials maintained that there remains room for further cuts in the SDA window, but said this depends on the overall inflation trajectory. "We will assess that again based on the overall assessment based on the comprehensive set on inflation," Amador said. Sought for comment, Metropolitan Bank & Trust Co. research head Ildemarc Bautista said the policy hold was expected and was already priced in by the market. However, Bautista said the SDA cut is essentially "a signal to the maker to move out of the SDA window and look for better payments." While agreeing that there is still more space for an SDA cut, the Metrobank analyst noted that monetary authorities will likely pause with policy tweaking. "They're going to test if the funds have actually moved out," Bautista said, noting that SDA deposits have actually gone up following the interest cut in January. — VS/BM, GMA News