MANILA, Philippines - Some find the special deposit account (SDA) facility of the Bangko Sentral ng Pilipinas a rather annoying creature in that it impedes, among other unintended consequences, the business of lending among banks.
But not the local unit of the Dutch financial-services giant ING Bank, whose lead economist told a gathering of market players, regulators and the media on Thursday the monetary tool has an appeal, largely unappreciated, all its own.
“Some of the liquidity is going there. To me that is a source of comfort in terms of inflation,” ING Bank Manila lead economist Joey Cuyegkeng said of the SDA as a practical utility.
This pertains to that mechanism unleashed on the market by the BSP to help it manage inflation by sapping as much of the liquidity that may just be sloshing around, boosting the likelihood of prices moving skyward.
The facility is of particular interest to local savers and investors, given the concern over rising inflation not just in the Philippines but in the region, as well.
ING Bank tackled the issue in a public forum in which the general theme centered on slow growth, supposed central bank denial and hot-money flows.
Cuyegkeng said the inflation situation, whether here or abroad, is not as dire as painted by those who claim most central banks are behind the curve or tardy in their response to the inflation challenge.
More recent policy notes written by foreign and local analysts contend that central banks are taking their time to normalize policy rates collectively taken as response to the global recession the past two or three years.
According to Tim Condon, managing director and head of research at ING Bank Singapore, the BSP did a good job at the helm of an economy that weathered the financial crisis and came out of it more resilient than most.
“The BSP is a shining example. Hopefully, they will look at it as a model of how things should be done,” he said of BSP Governor Amando M. Tetangco Jr. and six others in the policy-making Monetary Board, whose collective effort allowed the Philippines to build a foreign currency reserve level of more than 11 months and its current account in a state of surplus by the time the global crisis ended.
Condon said central banks in the region have all engaged in sustained accumulation of net foreign assets to prevent their currencies from appreciating too quickly, the Philippines included.
But no matter the inflation pressure resulting from the net inflow of foreign capital, inflation in Asia and the Philippines was rated only as a secondary concern.
He also cited the BSP and the “less interventionist” role Tetangco adopted the entire time the global financial environment was in turmoil.
As for Cuyegkeng, he cited the end of an era in which the Philippines regularly posted twin deficits in its current account as well as its fiscal balance.
He said the country now enjoys a robust external sector, with revenues from the business process outsourcing sector seen growing again this year by about 8% on top of the anticipated 6% growth in remittances sent by millions of overseas Filipinos.
He also said the BSP was not likely to make adjustments in monetary policy till around the fourth quarter this year when a 50-basis point increment was forecast.
The BSP has kept its policy rates unchanged since July 2009 and continues to borrow from banks at only 4% while lending them money at 6 percent.