Bangko Sentral savings from limits to SDA access may reach P5B — ING

Limiting the access to short-term special deposit accounts (SDA) can save the Bangko Sentral ng Pilipinas up to P5 billion, and the market's knee-jerk reaction may temper the robust peso against the dollar, ING Bank NV said Tuesday.

 

In a statement, Joey Cuyegkeng, senior economist at ING Manila, expects some of the funds “to move into the real economy, as deposit rates of banks are not as attractive as SDA rates.

 

“We reckon that the impact would be modest at best, while saving BSP around P5 billion in interest expense,” he said, noting the P1.29 trillion trust asset due from the central bank as of December last year. 

 

“The December amount gives us some idea of the possible stored liquidity that moves to the bank proper and to the monetary system,” Cuyegkeng said. 

 

The economist said additional 15 percent of domestic liquidity—which stood at P5.1 trillion in March—will be flushed into the system. 

 

Starting next year, trust entities can only tap the SDA facility for fund management activities, specifically for trust accounts and unit investment trust funds, according to a May 17 memorandum. 

 

Gradual withdrawals of other short-term deposits in the window are expected to start by July. 

 

The move was the latest in a series of SDA tightening, stepping up efforts to reduce costs of managing liquidity and foreign exchange. 

 

Following the three cuts on SDA yields this year, and barring foreigners from placing deposits in the window, placements in the short-term facility stood at P1.858 trillion as of May 3 from P1.933 trillion on April 26. 

 

Other than savings from paying placements in the window, reduced costs from intervening in currency market can also be realized amid projected peso weakening. 

 

Defending the foreign exchange rate from volatility, the Bangko Sentral incurred a record net loss of P95 billion in 2012, according to documents released last week.  

 

Cuyegkeng said the latest tightening should keep the peso at the P41-41.50 range. 

 

He said the market will remain “bearish on the peso... as a “knee-jerk” reaction to the BSP’s latest SDA policy, coupled with the overall strength of the US dollar and the significant and rapid weakness of the Japanese yen.”

 

The peso has been trading at the low 41-to-a-dollar level this month, stronger than the P42:$1 level it hovered at a year earlier.

 

Currency traders interviewed by GMA News Online Monday said a gradual weakening of the peso is likely as fund managers are forced to look into higher yielding instruments elsewhere. — SOA/VS, GMA News