Domestic liquidity expands 36% in Feb
MANILA, Philippines - Buoyed by the sustained demand for credit, the country’s domestic liquidity (M3) expanded 36.4 percent in end-February to reach P6.9 billion, data from the Bangko Sentral ng Pilipinas (BSP) showed.
The M3 growth in February, however, was slightly slower than the 37.3 percent expansion recorded in January.
Month-on-month, seasonally-adjusted M3 rose mere 0.9 percent following the robust 5.1 percent growth in January.
M3 is an economic indicator closely monitored by the BSP as this may impact on inflation. It consists of money supply, peso, savings and time deposits and deposit substitutes of money-generating banks or deposit money banks.
A higher M3 means there is too much money in the financial system, which may trigger inflationary pressures.
Domestic claims increased 14.3 percent in February as bank lending accelerated further. Bulk of the increase went to real estate, renting and business services, utilities, wholesale and retail trade, manufacturing, as well as financial services.
Public sector credit, on the other hand, grew at a slower pace of 11.9 percent as the deposits of the National Government increased, reflecting in part the proceeds from the auction of government securities as well as revenue collections from various agencies.
Net foreign assets (NFA), the value of assets a country owns abroad minus the value of the domestic assets owned by foreigners, increased 7.5 percent.
The growth in NFA was attributed by the BSP to higher valuation of foreign assets due to the depreciation of the peso relative to year-ago levels.
According to the BSP, its NFA position also rose on the back of continued robust foreign exchange inflows coming mostly from overseas Filipinos’ remittances and business process outsourcing (BPO) receipts.
The NFA of banks, BSP said, also increased as banks’ foreign assets expanded at a faster rate relative to the growth in their foreign liabilities.
Banks’ foreign assets expanded due mainly to the growth in foreign loans and receivables, while banks’ foreign liabilities rose on account of higher deposits of foreign residents as well as placements made by foreign banks with their local branches.
The BSP said the strong M3 growth reading in February reflected in large part the broad decline in the special deposit accounts (SDAs) placements of trust entities compared to their levels a year ago. It would be noted that the BSP’s operation adjustments in the SDA facility were completed in 2013.
With the recent policy measure to adjust the reserve requirement of banks, the growth in M3 is expected to move toward its long-run trends consistent with the pace of expansion in the real sector.
Despite keeping key policy rates steady, the BSP will implement a one-percentage point increase in banks’ reserve requirement due to high liquidity growth. The new levels takes effect today (April 1).
With this, the monetary authorities have also vowed to closely assess the condition of the market to ensure that liquidity dynamics stay in line with the BSP’s price and financial stability objectives.
The BSP also assured the public that it would not hesitate to deploy measures, as needed to guard against potential risks to financial stability that would arise from continued strong liquidity growth.