MONEY supply as measured by M3 grew at a slower year-on-year pace in July as the central bank’s adjustments to its macroprudential measures to mop up excess liquidity from the financial system took effect.
M3 or domestic liquidity — the total amount of cash and cash-equivalent securities circulating within the economy—reached P7.1 trillion in July, rising 18.3 percent from the year-earlier level.
The Bangko Sentral ng Pilipinas (BSP) on Friday said M3’s increase was slower than the revised 23.3 percent year-on-year expansion recorded in June.
Month-on-month, seasonally adjusted M3 declined by 2.5 percent, following a slight dip of 0.3 percent in the previous month.
“The previous adjustments in the reserve requirement, as well as in the interest rates on the special deposit account, reverse repurchase, and repurchase facilities are expected to continue to bring domestic liquidity growth in line with the pace in expansion of the real sector,” the BSP said.
The central bank raised the interest rate on the SDA facility from 2 to 2.25 percent at the June 19 policy meeting of the Monetary Board.
The Monetary Board of the BSP at its March 27 meeting raised the RRR for banks to 19 percent, then further to 20 percent at its May 8 meeting in a bid to siphon off excess liquidity from the financial system. On June 19, the policy-setting body increased the rate on the SDA facility by 25 basis points to 2.25 percent.
“Money supply continued to increase due largely to sustained demand for credit in the domestic economy,” the BSP stated.
Domestic claims during the month rose 13 percent from a year earlier as bank lending growth accelerated further, with the bulk of the new loans channeled to key production sectors such as real estate, renting and business services, wholesale and retail trade, manufacturing, utilities, and financial intermediation.
Meanwhile, public sector credit dropped by 4.1 percent in July following a revised expansion of 8.7 percent in June, as the deposits of the national government with the central bank increased at a faster pace, “reflecting in part proceeds from the auction of government securities as well as revenue collections of various agencies,” the BSP said.
Net foreign assets, or the net position of the central bank relevant to transactions with non-residents, grew 1.9 percent in peso terms, it added.
“Going forward, the BSP remains prepared to deploy all necessary measures to ensure that liquidity dynamics stay consistent with the BSP’s objective of maintaining price and financial stability,” it concluded.