Effective on 10 May 2007, the BSP will implement the following measures to enhance its liquidity management:
- Encourage GSIS, SSS, and other government-owned and -controlled corporations (GOCCS) to deposit funds with the BSP;
- Allow trust entities under BSP supervision to deposit funds with the BSP; and
- Allow special deposit account (SDA) placements of banks to be considered as alternative compliance with the liquidity floor requirements for government deposits.
These measures are intended to help prevent potential inflationary pressures that could build up over the medium term as a result of rapid money supply growth driven mainly by foreign exchange inflows, which in turn have been encouraged by strong macroeconomic fundamentals and positive market sentiment on the country’s economic prospects. The measures were drawn up following a series of consultations undertaken by the BSP with GOCCs, the banking industry, and financial market players.
The Fixed-Term Deposit Facility for GOCCs is an existing facility but the BSP is encouraging the GOCCs to make greater use of this instrument by pricing it more competitively and in line with the BSP’s policy interest rates.
Meanwhile, trust entities under BSP supervision will be allowed to deposit in the BSP’s SDA facility. Such placements will be treated as separate from those of the parent institution but will be likewise subject to SDA guidelines, including the tiering scheme. On the other hand, the eligibility of SDA placements with the BSP as alternative compliance to the liquidity floor requirement will provide banks with greater flexibility in meeting the prudential requirements for government deposits.
Consistent with its commitment to prudent monetary policy, the BSP will continue to pay close attention to the potential risks to inflation, notwithstanding the benign inflation outlook. The monetary authorities believe that the new measures can prove effective in reining in strong liquidity growth, and therefore stand ready to reassess the settings for monetary policy once the impact of the new measures is fully transmitted to the financial system.