Money supply growth loses momentum


M3 up 23% in June vs up 28.4% in May

Growth in the country’s money supply eased further in June amid the implementation of the central bank’s macroprudential measures to mop up excess liquidity from the financial system and keep inflation at bay.

Domestic liquidity, or M3, rose 23 percent in June from the year-earlier level, bringing the total amount of cash and cash-equivalent securities circulating within the economy during the period to P7.1 trillion.

The Bangko Sentral ng Pilipinas (BSP) on Thursday said the rate of expansion has slowed from the 28.4 percent increase recorded in May.

Month-on-month, seasonally adjusted M3 declined by 0.4 percent, following a zero growth rate a month earlier.

“As in previous months, the high—though decelerating—M3 growth reading in June continued to reflect in part the decline in the special deposit account [SDA] placements of trust entities compared to their levels a year ago, in line with the BSP’s operational adjustments in the SDA facility,” 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 increase in the SDA interest rate and recent adjustments to the reserve requirement ratio (RRR) for banks are expected to help mitigate potential risks to consumer prices and financial stability that could emanate from strong liquidity growth.

The Monetary Board decided at its March 27 meeting to raise 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 kept its key policy rates and the RRR unchanged but increased the rate on the special deposit account facility by 25 basis points to 2.25 percent.

On Thursday, the central bank raised its raised its benchmark interest rates on overnight borrowing and lending facilities by 25 basis points as latest baseline forecasts indicate that the 3 percent to 5 percent inflation target could be at risk.

The central bank explained that money supply continued to expand due largely to the sustained demand for credit in the domestic economy.

BSP data shows that domestic claims during the month grew 13 percent from a year earlier, reflecting the steady uptrend in lending to the private sector.

In addition, public sector credit increased by 8.3 percent after a contraction of 0.2 percent in May.

National government deposits with the BSP increased at a slower pace as a result of the Treasury’s withdrawal of funds for the redemption of maturing government securities and the month-end release of the internal revenue allotment funds to local governments.

Net foreign assets, or the net position of the central bank relevant to transactions with non-residents, expanded by 6.1 percent in peso terms.


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