Funds parked at the Bangko Sentral continued to rise in May despite a series of rate cuts aimed at increasing lending to businesses.
Bangko Sentral data show that banks placed P794.615 billion in central bank’s overnight borrowing and special deposit account facilities as of May 15, up from P653.879 billion at the end of December last year when the central bank started cutting its rates.
Bangko Sentral Deputy Gov. Diwa Guinoguindo, however, said lending had increased significantly despite the increase in bank placements with the central bank.
“We’re trying to figure out why [economic growth was low despite] the increase in demand for money and loans outstanding of banks. It could be that the loans have been disbursed but not yet spent,” Guinoguindo said.
The economy grew a disappointing 0.4 percent in the first quarter against expectations, prompting the government to review its growth forecast for the year.
Funds placed with the central bank’s overnight borrowing, or reverse repurchase facility, amounted to P199.5 billion as of May 15, up from P154.98 billion a week earlier. Funds at the special deposit account facility, meanwhile, stood at P595.115 billion as of May 15, down from P611.944 billion a week before.
Traders said some banks started shifting their money to the reverse repurchase facility that week to give them more flexibility. The reverse repurchase facility has shorter tenors than the special deposit account. With several corporates borrowing money in May, banks did not want to lock up their funds for too long.
The central bank cut its key policy rates by another 25 basis points on May 28, the lowest level since May 1992. The rate cit brought the central bank’s cumulative rate cut to 175 basis points since December last year.
The central bank had already been easing the monetary policy prior to the rate cuts to provide more funds in the system in the wake of the global financial meltdown in September.
In November, the central bank cut its reserve requirement by 200 basis points to release more funds into the system after banks became hesitant to lend to each other.
The cut in the reserve requirement was complemented by the increase in the central bank’s peso rediscounting budget to P40 billion from P20 billion. –Eileen A. Mencias, Manila Standard Today
Invoke Article 33 of the ILO constitution
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