MANILA — The country’s monetary authorities said it will increase the interest rate on the special deposit account (SDA) to clean up excess liquidity but pledged to keep policy rates steady.
Last adjusted April last year, the SDA rates were hiked this year by 25 basis points to 2.25 percent across all tenors.
“This is meant to counter risks to price and financial stability that could emanate from ample liquidity, noting that a modest upward adjustment in interest rates would be prudent amid robust credit growth,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said in a briefing.
BSP’s records showed that M3, the broadest measure of liquidity, increased by 32.1 percent in April. This figure is slower than the 34.7 percent recorded in the previous month.
“The Monetary Board believes that solid domestic growth prospects allow some scope for a measured adjustment in the SDA rate to ensure that monetary and credit conditions continue to be appropriate,” he added.
Meanwhile, the policy rates were kept steady by monetary authorities.
“The Monetary Board’s decision to maintain the policy rates at their current levels is based on its assessment that the future inflation path is likely to stay within target over the policy horizon,” Tetangco said.
The current inflation forecast of BSP is now at 4.4 percent from an earlier projection of 4.3 percent, while the rate is seen to average 3.7 percent from an earlier 3.4 percent forecast next year.
“Although the latest baseline inflation forecasts have risen due to the higher inflation outturn in May and the inclusion of the potential impact of El Niño phenomenon on food and utility prices, inflation is projected to settle within the upper half of the target ranges of (three to five percent) for 2014 and (two to four percent) for 2015,” he said.
Tetangco added that several factors including the changing weather conditions will likely affect the inflation outlook.
“Inflation expectations continue to be within the target bands for 2014 and 2015. Meanwhile, the balance of risks to the inflation outlook remains tilted toward the upside, with potential price pressures emanating from the possible uptick in food prices as a result of changing weather conditions, and pending petitions for adjustments in power rates,” Tetangco said.