The country’s money supply is expected to normalize this year as a result of the completion of the operational adjustment the special deposit accounts (SDA) facility, a high-ranking official of the Bangko Sentral ng Pilipinas (BSP) said on Tuesday.
On the sidelines of the Euromoney Philippines Investment Forum, BSP Governor Amando Tetangco Jr. said that after months of robust growth, the domestic liquidity or M3 has started to decelerate.
M3 eased to 32.7 percent year-on-year at end-December from the 36.5 percent recorded in the previous month.
“We already seen the start of deceleration, and the expectation that this deceleration will continue and M3 growth will normalize this year,” Tetangco said.
In May last year, the central bank told banks to gradually reduce its investment management accounts (IMA) from the SDA starting July in line with a full ban by 2014. The guideline said that any remaining balance in the IMAs shall be phased out by November 30. The facility can only be accessed through participation in pooled funds of the Trust departments of banks.
With the operational adjustments, Tetangco said that the funds that were invested in IMA migrated to bank deposits, which caused the robust growth of M3 during the period.
“IMA is not part of M3, deposits are part of M3. A significant portion of the funds migrated from IMA went back to the BSP because the banks, once they got the deposits, put this in the SDA,” he said.
Meanwhile, the BSP governor noted that credit growth in the country continues to reflect a growing economy and higher growth trajectory despite the increase in money supply.
“Potential growth is higher now. So the monetization of the economy is increasing. Credit goes to the productive sectors, like manufacturing, services and real estate,” he said.
Tetangco also said that banks have not eased its standard when it comes to lending, adding that even there is greater liquidity in the system, banks have maintained prudent credit standards.
On the other hand, the BSP governor said that the country needs to have more investments to support its medium- to long-term growth.
“We want more investments. We are not saying that we don’t want consumption. If you look at economic history, at the height of 1997-1998 Asian financial crisis, we did not go into negative territory as far as growth is concerned, whereas, our neighbors showed negative growth rates,” he said.
Tetangco added that what enabled the country to survive the crisis is the fact that consumption remains positive.
“It’s an important driver of growth. At the same time, we would also like to look at sustainable growth in the medium to long term,” he said.
“And there you need investments in infrastructure and manufacturing. We like to develop investments more, increase the investment to gross domestic product ratio, precisely to establish a more solid base for medium- to long-term growth,” he added.