MONEY supply grew at a faster pace of 8 percent in May to P4.26 trillion, the result of the continued expansion in net foreign assets due to sustained remittances as well as capital inflows, in the form of foreign direct investments and portfolio or “hot” money placements.
This much liquidity in the system compared with money supply equal to only P4.20 trillion in April, came at a time when inflation, or the rate of change in prices, accelerated from 4.3 percent to 4.5 percent during the period.
The acceleration in money-supply growth further boosted the likelihood that the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) will again raise its policy rates by at least 25 basis points when it meets on the 28th of the month.
The World Bank has noted the steady pace by which inflation has crept higher since the start of the year, averaging 4.26 percent in the first six months.
The World Bank nevertheless said price pressures in the Philippines have proved lower than peers in the region, and driven higher by crop/aquaculture damage from adverse weather conditions, as well as by elevated prices of selected imported products.
Updated data show that core inflation, which excludes certain food and energy items from the basket of commodities used in measuring the consumer price index, rose higher in June to 4 percent from only 3.7 percent in May.
The BSP said the steady 15.3-percent increase in net foreign assets in May helped fuel the expansion in money supply.
It also said the net foreign assets of banks fell further by 86.5 percent during the period as their foreign liabilities increased even as their foreign assets fell.
“Banks’ foreign liabilities rose with the increase in bonds and bills payables, as well as higher placements and time deposits made by the head offices/other branches of foreign banks with their Philippine branches,” the BSP said.
Meanwhile, the contraction of banks’ foreign assets was due in part to the decrease in loan receivables from foreign banks.
“Net domestic assets, meanwhile, declined at a slower pace of 6.2 percent from 9.3 percent in the previous month, given the slower expansion in the net other items account [which includes revaluation and capital and reserve accounts], as well as SDA [special deposit account] placements of trust entities] in May,” it said.
By contrast, the BSP said the growth in net domestic credits rose to 7.7 percent with credits extended to the private sector expanding at a faster pace of 13.4 percent from 11.9 percent in the previous month. This trend is in line with the accelerated growth of bank lending to the productive sectors of the economy.
“Meanwhile, credits extended to the public sector contracted further due mainly to the decline in credits extended to the government given the continued increase in government deposits with the BSP and other banks during the month,” the BSP said.
