Total cash in circulation, or money readily avail-able to businesses and households, picked up speed and grew by 8.5 percent to P7.5 trillion in February this year, according to the Bangko Sentral ng Pilipinas (BSP).
The central bank said this was based on preliminary data and an acceleration from domestic liquidity growth averaging 7.7 percent in January that represented a two-year low.
A growing cash supply is beneficial for a growing economy like the Philippines, providing it fuel for the productive sectors that increase the nation’s capacity to grow.
However, an excessively slow-growing cash supply may be bad for the nation, particularly if this proved insufficient to keep productive activities going.
Nevertheless, excessively high money-supply growth in an economy for an extended period could heighten risks of developing instability pockets, such as asset bubbles and upside inflation pressures.
In January 2014 the money-supply growth peaked at 38 percent—prompting the central bank to dampen liquidity growth by putting in place several measures last year, such as the hike in the banks’ deposit- reserve ratio and adjustments in the special deposits account (SDA) interest rate.
Money-supply growth, alternately known as M3 growth, was attributed to the sustained demand for credit and the
increase in placements of trust entities in the BSP’s SDAs.
This also reflected the so-called statistical base effects associated with the acceleration in domestic liquidity growth a year ago averaging 36.6 percent.
Domestic claims during the period grew by 10 percent in February, from 10.8 percent in January. Public-sector credit, meanwhile, contracted by 4.5 percent compared to the 2.2-percent decline a month earlier.
“Going forward, the BSP will continue to monitor monetary conditions and remain prepared to take appropriate measures necessary to ensure that domestic liquidity stays adequate to support a noninflationary growth trajectory,” the BSP said.
The BSP’s next policy meeting is on May 14 this year.