Money supply up 14.5% in September

Domestic liquidity expanded by 14.5 percent in September, bolstering fears that strong dollar inflows could stoke inflationary pressures.

The Bangko Sentral ng Pilipinas (BSP) said that the demand for money increased further in September based on data from the BSP’s Depository Corporations Survey (DCS).

According to the BSP, domestic liquidity growth or M3 accelerated to 14.5 percent year-on-year from 12.4 percent in August. On a month-on-month basis, M3 rose by 2.4 percent from 0.2 percent in August.

The BSP said the expansion in liquidity can be traced largely to the increase in the net foreign assets of depository corporations on the back of strong foreign exchange inflows from overseas Filipino workers (OFW) and portfolio investments.

The BSP said deposit money banks’ (DMBs) net foreign assets increased year-on-year by nearly tenfold in September, while the BSP’s net foreign assets continued to improve albeit at a slower pace.

According to the BSP, the growth of domestic credits to the National Government (NG) and its corporations also contributed to the expansion in domestic liquidity.

Net public sector credits grew by 4.2 percent in September as credits to the NG and local government units posted positive growth during the period.

In contrast, the BSP said there was a 1.3- percent decline in private sector credits as corporate demand for bank funds continued to lag behind consumer lending.

The BSP has expressed concern over the inflationary impact of strong forex inflows that were being used largely for consumer spending instead of being mobilized for investments through savings in banks.

Inflows mainly from OFWs have been the backbone of the country’s economic growth but officials admitted that they were not being maximized and instead spent on consumer goods.

BSP Deputy Governor Diwa Guinigundo said that although strong forex inflows and the attendant domestic liquidity surge would impact inflation, brisk economic activity could mitigate this effect.

"If these funds could be absorbed by the economy through savings, investments or any kind of productive activity, then it will fuel further growth," Guinigundo said. "Under those circumstances, it need not be inflationary."