Growth in the country’s money supply continued to ease in May under a central bank macroprudential measure mopping up excess liquidity from the financial system and
keeping inflation at bay.
Domestic liquidity, or M3, rose 28.4 percent from the year-earlier level, bringing the total amount of cash and cash-equivalent securities circulating within the economy during the period to P6.9 trillion.
The Bangko Sentral ng Pilipinas (BSP) on Monday said the rate of expansion has slowed from the 32.1 percent increase recorded in April.
Month-on-month, seasonally adjusted M3 was “broadly steady” in the month following a revised 0.3-percent rise in the month earlier.
“As in previous months, the strong, though decelerating, M3 growth reading in May continued to reflect the decline in the SDA [special deposit account]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 recently raised the rate on the SDA—a monetary facility employed by the BSP to manage excess liquidity in the financial system.
The increase in the SDA interest rate and the recent adjustments to the reserve requirement ratio for banks are expected to help mitigate potential risks to consumer
prices and financial stability that could emanate from strong liquidity growth.
The BSP’s Monetary Board over the last three consecutive monetary policy meetings has made adjustments to two of it policy levers to curb growth in money supply as a means to tame inflation and maintain stability in the financial system.
The Board decided at its March 27 meeting to raise the reserve requirement ratio (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 rate unchanged but increased the rate on the special deposit account facility by 25 basis points to 2.25 percent.
Bank of the Philippine Islands associate economist Nicholas Antonio Mapa noted that the central bank’s policy moves have helped curb M3 growth.
In an e-mail to The Manila Times, Mapa said sustained deceleration in M3 is in line with central bank projections that growth in money supply will normalize starting the second half of 2014.
Mapa sees money supply decelerating further in the coming months.
“RRR adjustments have made their way to affect the amount of liquidity in the system. M3 will continue to decelerate, and finally normalize as soon as the base-effect kicks in, after last year’s sharp mid-year spike,” he said.
Still, M3 growth remained high at 28.4 percent, which, central bank explained, was due to “sustained demand for credit in the domestic economy.”
BSP data shows that domestic claims during the month rose 11.8 percent from a year earlier as bank lending gained pace, offset only slightly by a 0.2 percent contraction in public sector credit as national government deposits increased.
Net foreign assets (NFAs), or the net position of the central bank relevant to transactions with non-residents, expanded by 5 percent in peso terms.