Philippines plans to restrict access to cash-mopping tools

[MANILA] The Philippines plans to close a loophole in regulation of trust funds, by restricting those overseen by banks from parking short-term cash at the central bank.

Bangko Sentral ng Pilipinas is considering limiting lenders' trust units from placing funds in its short-term deposit facility, monetary board member Felipe Medalla said on Tuesday.

Policy makers are reviewing access to its liquidity- mopping tools "under the overall framework" of its interest-rate corridor, Governor Amando Tetangco said Wednesday.

Banks' trust units have undue advantage over non-bank trust groups that aren't allowed to put money in the central bank's special deposit account or SDA facility, and also over lenders themselves that must comply with the reserve requirement, Mr Medalla said in an interview.

Placements in the so-called SDA facility, which the central bank uses to control liquidity, totaled about US$16.8 billion as of December 29. The central bank is preparing to shift to an interest-rate corridor by the second quarter, a move intended to strengthen its policy tools.

Limiting fund managers' access to SDAs will make it a purely cash-mopping tool, said Eugenia Victorino, an economist at Australia & New Zealand Banking Group Ltd in Singapore.

In line with plans to shift to an interest-rate corridor system, "the central bank may be thinking of making SDAs a liquidity- management tool that should not be thought of as an investment vehicle."

At present, the central bank pays 2.5 per cent for funds placed at SDAs, compared with its benchmark rate of 4 per cent.

The 91-day Treasury bill fetched 1.684 per cent at the most recent auction.

BSP has tools to ensure liquidity growth is healthy and is seeking comments on the proposal, Mr Medalla said.

BLOOMBERG