THE total cash circulating in the local economy was lesser in the first month of this year, as previous policy actions put in place by the central bank still continue to work their way into the local cash stream.
The Bangko Sentral ng Pilipinas (BSP) reported that domestic liquidity—or the volume of money currently in the economy, broadly measured as M3—grew by 7.7 percent in January 2015, as compared to the same month last year to hit P7.5 trillion.
This is the lowest cash-supply growth in the country since September 2012, when it hit 6.4 percent.
A growing cash supply in a growing economy is beneficial, as it gives fuel to productive sectors to increase the nation’s capacity to grow.
On the other hand, an excessively slow cash-supply growth may be bad for a country, especially if it does not provide enough fuel to keep productive activities going.
Meanwhile, an excessively high cash-supply growth in an economy for an extended period of time may heighten the country’s risks in developing instability pockets, such as asset bubbles and upside inflation pressures.
In January 2014 the cash-supply growth hit its peak at 38 percent—prompting the central bank to control the growth of liquidity by putting in place several control measures, such as the hike in the banks’ reserve requirement ratio and in the special deposit accounts (SDAs) interest rate.
While the central bank’s moves continue to be in effect as money-supply growth sustains its downward trend, the BSP also said that the high statistical base effects—as seen in the 38-percent growth in January last year—helped explain the further slowdown of cash-supply growth in the country.
In a discussion earlier with the BusinessMirror, BSP Deputy Governor for Monetary Stability Diwa C. Guinigundo maintained that the P7.5-trillion cash supply in the country is enough to feed a growing economy which targets to grow by 7 percent to 8 percent in the next years.
Likewise, the central bank said in its recent release that the BSP will continue to keep a close eye on monetary dynamics and remains prepared to put in place appropriate measures, if needed, to ensure that cash supply stays sufficient to support the growth requirements of the economy.
The growth of cash supply during the period came mostly from the sustained demand for credit in the country, the BSP said.