Easing also traced to capital flight, lenders’ window-dressing
The Philippines’ money supply continued to grow but more slowly in November than the preceding month amid higher bank lending and withdrawals by the government from the central bank, official data shows.
There was also some capital flight and lenders’ window-dressing activities during the month, a private bank analyst added.
Bangko Sentral ng Pilipinas (BSP) data released on Thursday showed domestic liquidity, or M3 by central bank parlance, expanded by 12.7 percent year-on-year to P9.06 trillion in November.
“Demand for credit remains the principal driver of money supply growth,” the central bank said, explaining the increase.
“The expansion in M3 remains manageable and consistent with the BSP’s current outlook on inflation and economic activity,” it added.
The expansion was, however, slightly slower than the 12.8-percent rise recorded in October.
Bank of the Philippine Islands (BPI) Vice President lead economist Emilio Neri Jr. Bank sees nothing unusual with slower growth in liquidity even as lending stepped up.
“Technically, this is possible as monetary aggregates typically refer to peso-denominated deposits while lending includes both peso and foreign currency lending.”
Tracing the cause of the slowdown, Neri said that apart from higher lending, it may have also resulted from sustained capital outflows after Donald Trump’s win as the new United States President, the anticipation of a Federal Reserve rate hike this month and anxiety over some negative domestic political noise.
The BSP said that M3 growth in the 11th month accelerated from 9.4 percent in November 2015, but the report gave no explanation.
Increased domestic claims
Domestic claims rose 17 percent from 16.7 percent “due largely to sustained growth in credit to the private sector,” the BSP said.
Net claims on the central government mounted by 24.9 percent as a result of continued deposit withdrawals by the national government from the BSP.
Net foreign assets (NFA) in peso increased by 9.2 percent, accelerating from an 8.7 percent rise. The central bank’s own NFA position continued to expand on the back of robust foreign exchange inflows from remittances and business process outsourcing receipts.
Banks’ net foreign assets expanded on the back of higher interbank loans, deposits with other banks and investment in marketable debt securities.
Bank lending accelerated in November, expanding by 18.6 percent from 17.7 percent in October. Including reverse repurchase placements (RRPs) with the central bank, lending grew by 17.4 percent in the same comparable period.
“On the other hand banks may have decided to grant more peso and US dollar loans to move a step closer to their yearend window dressing objectives,” Neri said.
Lending for production activities, which accounted for over 89 percent of the aggregate loan portfolio, expanded further at 18.1 percent.
Growth in production loans was driven primarily by increased lending to the following sectors: real estate activities; electricity, gas, steam and airconditioning supply; wholesale and retail trade, repair of motor vehicles and motorcycles; manufacturing; information and communication; and financial and insurance activities.
“Bank lending to other sectors, likewise, expanded during the month, except for public administration and defense, compulsory social security, which declined by 5.6 percent,” the BSP said.
Loans for household consumption also increased by 24.5 percent in November from 22.2 percent in October due to the continued growth in credit card loans, motor vehicle loans and salary-based general-purpose loans, offsetting the decline in other types of household loans, it added.
“Going forward, the BSP will continue to ensure that the expansion in domestic credit and liquidity conditions keeps pace with overall economic growth while remaining consistent with the BSP’s price and financial stability objectives,” the BSP said.