MANILA - The Philippine central bank is considering more cuts in its short-term special deposit account facility as inflation is expected to remain benign, but said such a move does not mean it is easing monetary policy.

The central bank has lowered the rate it pays on placements with its special deposit accounts (SDA) by a total of more than 100 basis points in the six months to January after the facility attracted huge volume of funds seeking higher returns following a sustained fall in local interest rates.

By cutting the SDA rate, the central bank is encouraging banks to lend more to the consumers and drive domestic demand in the economy. It will also lower the monetary authority's sterilisation costs.

"We will review whether there is scope for further reducing the SDA rate considering that the economy is doing very well, inflation is benign, bank lending remains strong, and domestic liquidity remains appropriate with the pace of economic activity," Diwa Guinigundo, deputy governor of the Bangko Sentral ng Pilipinas (BSP), told reporters over the weekend.

"It should be clarified that any changes at this point in the SDA rate do not necessarily capture the monetary policy stance of the BSP. It is still the policy rate that defines the stance of monetary policy," he said.

The central bank will meet on March 14 to set policy rates. It has kept its overnight borrowing rate steady at a record low of 3.5 percent as inflation expectations remained well anchored and the domestic economy recorded stronger-than-expected growth in 2012.

It expects inflation to average 3 percent this year, well within its 3 percent to 5 percent target band.

Analysts expect the central bank to keep its policy rate unchanged until the second half of this year when it may start to consider hiking as an uptick in the economy starts pushing up consumer prices.

Following two cuts in SDA rates in January and July last year and an automatic reduction with the cut in policy rates in July and October, the central bank now pays a flat rate of 3.0 percent for all SDA tenors ranging from one week to a month.

That rate is still higher than secondary market rates for government debt paper one year and below of around 1 percent or less.

In July, the central bank also tightened SDA rules to keep foreign funds out of the facility to discourage dollar flows that have helped the peso become Asia's second best performing currency last year.

Funds placed with the SDA window totalled P1.8 trillion ($44 billion) in the week ending Feb. 8, down from a record P1.9 trillion in September, according to latest central bank data.

Guinigundo also said prolonged easier monetary policy and sharper budget cuts in the United States will further push risk-averse funds towards emerging markets such as the Philippines, adding to the strong inflow of portfolio funds in the local market.