The expansion in credits to the domestic sector and adjustments in the special deposits accounts (SDA) facility drove the country’s money supply to reach the record high of P6 trillion at end-July, the Bangko Sentral ng Pilipinas (BSP) said over the weekend.
Under the Standardized Report Forms (SRFs) format, domestic liquidity (M3) grew by 30.1 percent year-on-year at end-July, faster than the 20-percent expansion recorded in the previous month, making July 2013 M3 growth the highest on record since December 2002, the BSP said.
On a monthly basis, seasonally adjusted M3 also expanded at a faster pace of 8.9 percent compared to the 3.7-percent growth in June.
The BSP noted that claims on the domestic sector grew by 11.3 percent in July from 11.1 percent in June, because of the continued increase in claims on the private sector, “reflecting the sustained growth in bank lending to bolster economic activity.”
Also, net claims on the central government rose by 8.1 percent in July, largely as a result of the increase in investments in national government securities.
Meanwhile, the BSP said that steady foreign exchange inflows from remittances, business process outsourcing receipts and portfolio investments led to the faster growth of its net foreign assets (NFA).
The central bank’s NFA position was faster at 9.3 percent year-on-year in July compared to 6 percent in June.
On the other hand, the NFA of banks increased as banks’ foreign assets grew faster than their foreign liabilities.
“Banks’ foreign assets rose due to the growth in their loans and receivables as well as in their deposits and placements with head offices, while banks’ foreign liabilities continued to increase due mainly to higher placements and deposits of foreign banks with their local branches and other banks,” the BSP explained.
Furthermore, BSP noted that the operational adjustment of its SDA facility has also led to the substantial rise in M3 growth in July.
“It will be recalled that the BSP required that trust entities should have reduced their SDA placements that are not consistent with the revised guidelines by at least 30 percent by end-July 2013. The remaining 70 percent should be phased out by end-November 2013,” it explained.
The central bank added that M3 growth rates are expected to decelerate once the adjustments have been completed.
It also assured that a temporary period of high M3 growth is not expected to translate into significant inflationary pressures.
“At the same time, the ample availability of credit should facilitate investment and help support an increase in the economy’s productive capacity, thus tempering price pressures,” the BSP stated.
Latest baseline forecasts of the central banks suggest that inflation will remain manageable over the policy horizon, even with the stronger pace of growth in domestic liquidity in the new few months.
“Going forward, the BSP will continue to assess carefully the medium-term impact of strong liquidity growth on the outlook for inflation as well as on financial asset prices,” it said.
The BSP also assured that it is ready to deploy appropriate measures as needed to ensure that liquidity conditions stay supportive of sustainable economic growth, while maintaining price and financial stability.