Earlier efforts to curb continued monetary expansion allowed money-supply growth to ease in October, when this hit a new low, the Bangko Sentral ng Pilipinas (BSP) said on Friday.
Latest data from the BSP show domestic liquidity, broadly measured as M3, growing by only 15.4 percent in October compared to the same month last year.
October M3 growth proved slower than the previous month’s expansion of 16.2 percent. It was also the slowest in a year-and-a- half, or since April 2013, when M3 grew by 12.9 percent.
In absolute terms, the total cash circulating in the country as of end-October aggregated P7.2 trillion.
An expanding cash supply is beneficial, as it helps fuel the activities of the productive sectors of the economy and, by extension, its potential for growth.
However, excessively high cash- supply growth in an economy for extended periods could heighten risks in developing instability, such as asset bubbles and upside inflation pressures.
Earlier this year, M3 growth averaged 30 percent for many months and peaked in January, when it actually hit 38 percent.
The central bank has since implemented a tighter monetary-policy stance and has used other monetary levers, such as the hikes in special deposits account interest rate and the deposit-reserve requirement ratio of banks, to bring down M3 growth to “more normalized” levels of 18 percent to 15 percent.
At its current pace of expansion, the central bank said M3 is expected to further ease toward the end of the year due to the residual effects of previous adjustments by the Monetary Board.
“Domestic liquidity growth is expected to moderate further in the months ahead, as previous monetary-policy adjustments continue to work their way through the economy. Going forward, the BSP remains prepared to take appropriate action as needed to ensure that monetary conditions continue to support price and financial stability,” the central bank said.
The BSP attributed the continued growth of peso liquidity in the system to sustained demand for credit during the period.
In a separate report released also on Friday, the BSP said bank lending continued to expand at a faster rate in October, averaging 21.2 percent.
This was faster than the 20.5-percent M3 growth posted the previous month.
Higher loans taken out during the period were due to demand for loans for production activities, which accounted for about four-fifths of the banks’ total loan portfolio.
The loans, which are used to finance production undertakings, accounted for 80 percent of the banks’ loan portfolio.
Loans for production activities in October expanded by 19.7 percent, higher by a percentage point compared to the September growth rate.
“The rise in production loans was driven primarily by increased lending to the following sectors: manufacturing, which grew at 20.9 percent; real estate, renting and business services at 15.9 percent; wholesale and retail trade at 19.4 percent; electricity, gas and water at 22.9 percent; and financial intermediation at 22.1 percent,” the central bank noted.
All other sectors, likewise, posted a positive lending growth during the period, except for public administration and defense, which declined by 1.2 percent.
Loans for household consumption, meanwhile, grew steadily at 17.3 percent in October, as the continued expansion in auto and salary loans offset the slowdown in the growth of credit-card loans.
“The continued broad-based growth in bank lending supports the view that the underlying demand prospects remain favorable amid buoyant business expectations on the economy,” the central bank said.
Other components of M3 during the period, likewise, grew moderately.