Domestic liquidity, lending sustained

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Credit dynamics are well-positioned to provide financing for economic growth as domestic liquidity (M3) further expanded in June, the Bangko Sentral ng Pilipinas (BSP) said on Wednesday.

M3 grew by 20.3 percent year-on-year to reach P5.7 trillion, faster compared to the 16.4 percent revised expansion recorded in the previous month.

On a monthly basis, seasonally adjusted M3 also expanded at a faster pace of 4.1 percent, compared to the 2.9 percent growth in May. The central bank added the growth of money supply was driven largely by the sustained expansion in net domestic assets (NDA), which increased by 30.5 percent in June because of the continued increase in credits to the private sector.

“This, in turn, reflected the sustained growth in bank lending to help finance economic activity,” the BSP stated.


Meanwhile, the central bank also reported that credits to private sector increased by 3.8 percent, largely as a result of the increase in investment in national government securities.

“The increases in the balance of the net other items account also contributed to faster liquidity growth,” it said.

However, the BSP noted that net foreign assets (NFA) was also faster at 5.5 percent in June from 0.9 percent in May.

“The BSP’s NFA position increased, on the back of steady foreign exchange in flows from overseas Filipino’s remittances, and BPO [business process outsourcing]receipts,” it explained.

The central bank noted that the NFA of banks declined further as banks’ foreign liabilities continued to increase, because of higher placements and deposits made by foreign banks with their local branches and other banks, while their foreign assets continued to decrease because of the decline in their loan receivables from and deposits with foreign banks.

“Latest baseline inflation indicate that, with the current stronger pace of growth in domestic liquidity, inflation is expected to remain manageable over the policy horizon.

This is because of the economy’s absorptive capacity appears to be improving, even as domestic demand has continued to expand,” the BSP said.

Bank lending expands
Meanwhile, the BSP said that the expansion of domestic economic activity and stable financial conditions supported bank lending in June. It reported that the total outstanding loans of commercial banks, net of banks’ reverse repurchase (RRP) placements with the BSP, expanded but at a slower pace of 12.3 percent in June relative to the growth of 13.3 percent in May.

Also, bank lending inclusive of RRPs decelerated to 13 percent from 13.2 percent in the previous month. On a month-on-month seasonally adjusted basis, commercial bank lending in June increased by 0.8 percent for loans net of RRPs and by 0.4 percent for loans inclusive of RRPs.

Mayvelin U. Caraballo

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