Money supply continued to expand at a robust pace in June, although the rate of growth has noticeably slowed to just 9 percent, or P7.7 trillion, versus 9.3 percent a month earlier.
According to the Bangko Sentral ng Pilipinas (BSP), money-supply growth in June, alternately known as domestic liquidity or M3, represents a significant reduction from year-ago expansion when this averaged in double digits.
This development helped fuel speculation the monetary authorities now have the space from which adjustments in the banks’ deposit reserves may be made without fueling an inflation spike.
With M3 on the retreat and inflation dwelling in 20-year lows, such adjustments, as a tweak in the banks’ deposit reserves, could be safely implemented without fanning inflationary fires.
According to the BSP, an expanding cash supply is beneficial for a growing economy like the Philippines, as it helps fuel the productive sectors and boost the nation’s capacity to grow.
At the level reported, the BSP is optimistic that domestic liquidity growth should prove sufficient to help push local output, measured as the gross domestic product, averaging 7 percent or 8 percent this year.
“The sustained expansion in domestic liquidity during the month indicates that liquidity remains sufficient to support the economy’s growth requirements,” the central bank said in a statement.
The deceleration of domestic liquidity growth in June 2015, when viewed against the double-digit expansion in the same month last year, reflects the statistical base effect associated with the significant increase in M3 a year ago.
The liquidity hike last year was traced to operational adjustments involving, for example, access by trust entities to the special deposit account (SDA) window of the BSP, which were completed in November 2013. Latest data from the central bank show SDA deposits now lower than P1 trillion versus its peak of about P2 trillion before the adjustments were in force.
Money supply continued to increase also due to sustained demand for credit during the period, according to the BSP.
“Money supply continued to expand due largely to sustained demand for credit. Domestic claims grew by 10.8 percent in June from 9.7 percent in May [revised], as credits to the private sector increased at a faster pace relative to the previous month. The bulk of bank loans during the month was channeled to key production sectors, such as real-estate activities, electricity, gas, steam, and air-conditioning supply; wholesale and retail trade, and repair of motor vehicles and motorcycles; manufacturing; and financial and insurance activities.
“Meanwhile, net public-sector credit rose by 1.6 percent in June after contracting by 3.4 percent [revised] a month earlier,” the BSP said.
“Net foreign assets (NFA) in peso terms grew at a slightly slower pace of 8.0 percent in June from 8.3 percent in the previous month. The BSP’s NFA position continued to expand during the month, on the back of robust foreign-exchange inflows coming mainly from overseas Filipinos’ remittances and business-process outsourcing receipts.
“The NFA of banks, likewise, increased as banks’ foreign assets expanded, while their foreign liabilities contracted. Banks’ foreign assets increased due largely to the growth in their investments in marketable debt securities and deposits with other banks, while banks’ foreign liabilities decreased on account of lower deposits and placements made by foreign banks with their local branches,” the BSP said.