The Bangko Sentral ng Pilipinas may increase the interest rates on special deposit accounts if there is any upward movement in domestic liquidity in the coming months, DBS Bank of Singapore said in a report over the weekend.
“The Bangko Sentral ng Pilipinas remains concerned about liquidity in the financial system, even if some moderation is now visible… ,” the bank said.
“The central bank may adjust the rates on the special deposit account to absorb any spike in liquidity,” the report said.
Latest Bangko Sentral data showed money supply in the financial system expanded at a slower pace in January this year, growing by 7.7 percent to P7.480 trillion from P6.943 trillion a year ago, as previous measures implemented by the bank regulator to address excess liquidity in the previous months continue to work their way into the economy.
The January expansion was slower than the 11.3-percent revised growth in December last year, when money supply reached P7.709 trillion from P6.925 trillion a year ago.
In June last year, the Bangko Sentral increased by 25 basis points the interest rates on SDA to 2.25 percent from 2 percent across all tenors to address the issue of excess liquidity in the financial system. Then on Sept. 11, SDA rates were again increased by another 25 basis points to 2.5 percent across all tenors for the same purpose.
Domestic liquidity grew 30 percent in January last year.
But despite the possible upward adjustment in SDA rates if liquidity growth accelerated, DBS ruled out any movements in key policy rates.
“The rather sharp fall in inflation is likely to convince the BSP to continue taking a pause in its policy tightening course though. This is especially given the string of policy loosening steps witnessed in the region so far this year,” the bank said.
“… Any move on the key policy rate is unlikely. Expect the overnight borrowing rate to remain steady at 4 percent for the rest of the year,” DBS said.
It said lower-than-expected CPI inflation meant there was room for the Bangko Sentral to take a pause on its monetary policy normalization course.
Inflation in the first two months of the year averaged at 2.5 percent, well within the target range of 2 percent to 4 percent this year. February inflation accelerated to 2.5 percent from 2.4 percent in January due to some movements in the prices among commodity groups.