THE pace of the country’s money-supply growth will likely remain tame in the near term, despite expectations that consumer demand will pick up toward the latter part of the year.
In a research note in The Market Call, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research said the country’s domestic liquidity—broadly measured as M3—will likely expand by single digit.
“Money growth will remain single digit, as the Bangko Sentral ng Pilipinas [BSP] continues to sell excess dollars as they come in, as part of its effort to stem further large depreciations of the peso,” FMIC and UA&P said.
A growing cash supply is beneficial for an expanding economy, as it gives fuel to productive economic sectors to boost growth.
However, an excessively slow cash-supply growth in the economy may be bad for a nation, especially if it does not provide enough financing to keep productive activities going.
The peso, meanwhile, has indeed suffered from a depreciation trend in recent months due largely to the markets’ reaction to the developments in other parts of the world particularly in China and in the United States.
Data from the BSP showed that the peso currently averages at 46.729 to a dollar. The peso, meanwhile, ended 2014 with an average value of 44.688 to a dollar.
FMIC and UA&P also said the increased placement of trust entities into the BSP’s special deposit account facility helps keep M3 growth “in check.”
“Sustained demand for credit continued to add money into the banking system. Banks channeled the bulk of credit to key production sectors such as real-estate activities; electricity, gas, steam and air-conditioning supply; wholesale and retail trade; repair of motor vehicles and motorcycles; and manufacturing, among others,” the research note read.
The BSP’s most recent report on domestic liquidity showed that it grew by 8.5 percent year-on-year in July.
With the expansion, the total absolute value of cash in the economy is at P7.7 trillion as of July this year.
The BSP will be releasing the August M3 values at the end of the month.