MANILA, Philippines - Domestic liquidity growth is expected to remain high until the second half of 2014 due to adjustments in the central bank’s special deposit account (SDA) facility, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said yesterday.
“M3 growth, which has grown substantially, has been growing by over 30 percent but this growth is expected to be temporary,†Tetangco said.
“But we see this to be tapering off... and then towards the end of next year we’ll be back to more or less the more normal trend,†Tetangco added.
M3, or the broadest measure of domestic liquidity grew to a 10-year high in July at 30.1 percent, and this was further sustained in August at 30.9 percent.
But since this trend is only expected to last until the second semester of 2014, M3 growth should return to around 10 to 12 percent by then, Tetangco said.
The July M3 figure was driven largely by money flushed out of the central bank’s SDA, as the BSP fine-tuned the facility to encourage banks to lend more or invest thier money in other instruments and activities that will benefit the economy.
Adjustments included cutting the SDA interest rates by 150 basis points this year to two percent and ordering the removal of singular investment management accounts (IMA) in the facility. Banks had already taken out 30 percent of their IMA in the SDA last July, while the remaining 70 percent will be phased out by end-November.
Tetangco noted that in July, some banks had already removed more than 30 percent of their IMA in preparation for the total withdrawal of these funds by November, further stoking M3 growth.
“A significant amount (of these funds) found itself in bank deposits,†Tetango said, adding a number of banks chose to put some back in the facility as allowed by the central bank.
“So what you’ll notice is that even if M3 is up due to these refinements to the facility, the liquidity basically has been absorbed or siphoned off by the BSP through this round-tripping of the funds,†Tetangco explained.
The SDA was introduced by the BSP in 1998 as a tool to mop off excess liquidity in the financial system. However, some investors have seen the facility as a better alternative to other instruments available in the market due to its high interest rate.