Money-supply growth—successfully moderated in recent months by the Bangko Sentral ng Pilipinas (BSP) via carefully calibrated anti-liquidity measures—increased anew in August, averaging 18.5 percent from 17.9 percent just a month earlier.
In a report released on Tuesday, the BSP said domestic liquidity (M3), the broadest measure of money supply, picked
up speed at just the time when price pressures, likewise, escalated, sending signals of more countermeasures from the monetary authorities.
The M3 growth in August approximates the central bank’s target of a more “normal” money-supply expansion in the second half of the year, when it was seen growing by 15 percent up to 18 percent.
In absolute terms, cash supply in the P12-trillion Southeast Asian economy aggregated P7.14 trillion.
The BSP said the recent policy moves adopted by the policy-making Monetary Board of the BSP helped tame the aggressive expansion of money supply that at one point averaged 30.9 percent in August last year.
The liquidity countermeasures include the increase in the deposit reserve ratio of banks by one percentage-point in March followed up by another percentage-point increase the following May.
An increase in the special deposits account (SDA) interest rate by 25 basis points in June as well as the hike in the country’s overnight policy rates by 25 basis points in July also worked their way through the system and all these measures helped bring down the M3 in August.
Money supply levels were likewise seen trending further down from September as the monetary board took a more aggressive monetary policy stance by adopting a double rate hike in the overnight policy rates as well as an SDA interest rate adjustment. Both were rate increases of 25 basis points each.
A strong and robust domestic liquidity growth in an economy is beneficial to growing countries as the Philippines to help prime the necessary sectors for greater expansion. However, a prolonged high growth regime could put the economy at risk of inflationary pressures and other financial instability problems.
The central bank further said they remain prepared to “deploy all necessary measures” to fasten liquidity dynamics in the country.
The sustained positive growth in M3, meanwhile, was attributed to the continued expansion of bank lending.
In a separate report on Tuesday, the central bank said bank lending expanded by 20.2 percent in August this year, slower than the revised 21.1 percent in July this year.
“The sustained expansion of bank lending reflects the buoyant growth of the economy,” the BSP said. Lending to production activities was still the main driver of loans in the country, comprising 80 percent of the total lending portfolio of the local banks.
In particular, loans for production activities expanded by 19.1 percent in August from 20 percent in July.
“The expansion in production loans was driven primarily by increased lending to wholesale and retail trade, real estate, renting and business services, electricity, gas and water, financial intermediation and manufacturing,” the central bank said.
“Bank lending to other sectors also rose during the month except for public administration and defense which declined by 3.1 percent,” the BSP added.
Household credit, on the other hand, grew by 16.6 percent from 16.2 percent in July due to continued expansion in auto loans and other types of loans which offset the slowdown in credit card loans.
The central bank’s seven-man policy-making body will next have its rate-setting meeting on October 23 this year. This will be the monetary board’s penultimate meeting for this year.