Growth in domestic liquidity (M3) eased slightly in February from a year earlier but remained strong at P6.9 trillion on the back of sustained demand for credit from the economy, data from the Bangko Sentral ng Pilipinas (BSP) showed on Monday.
The country’s money supply surged 36.4 percent in February, slowing from a revised 37.3 percent record-high expansion in January.
Month-on-month, seasonally adjusted M3 posted a mild increase of 0.9 percent following the revised 5.1 percent growth in the previous month.
Domestic liquidity is the amount of cash and cash-equivalent securities circulating within an economy.
“The strong M3 growth reading in February reflects in large part the broad decline in the SDA [special deposit account]placements of trust entities, compared with their levels a year ago, in line with the BSP’s operational adjustments in the SDA facility that were completed in November 2013,” the BSP said.
SDA is a monetary facility instrument under the BSP that was made available to banks to manage excess liquidity in the financial system. In November last year, the central bank ordered banks to remove investment management accounts (IMA) from the facility, while it maintained the interest rates on the SDA by a total of 150 basis points to two percent on its latest monetary policy meeting.
“With the recent policy measure to adjust the reserve requirement of banks, growth in domestic liquidity is expected to move toward its long-run trend consistent with the pace of expansion in the real sector,” the BSP said.
The central bank has indicated a bias toward policy tightening by raising the reserve requirement ratio for commercial banks by 1 percentage point to 19 percent effective from April 4.
On the other hand, the BSP data said that domestic claims rose by 14.3 percent in February as bank lending accelerated further, while public sector credit grew at a slower pace of 11.9 percent as the deposits of the national government increased.
Net foreign assets (NFA), or the net position of the BSP with regards its transactions with non-residents, in peso terms also increased by 7.5 percent.
The central bank said its NFA position rose due to continued robust foreign exchange inflows coming mostly as overseas Filipino remittances and business process outsourcing receipts.
Similarly, the NFA of banks also increased as bank’s foreign assets expanded at a faster pace relative to the growth in their foreign liabilities, the BSP said.
“Bank’s foreign assets expanded due mainly to the growth in foreign loans and receivables, while banks’ foreign liabilities rose on account of higher deposit of foreign residents as well as placements made by foreign banks with their local branches,” it added.