Money supply growth slows to 11.4% in September

Domestic liquidity growth slowed down to 11.4 percent in September from a 14.9- percent growth rate a month earlier as the Bangko Sentral ng Pilipinas (BSP) continued to siphon funds out of the system.

Data from the BSP’s Depository Corporations Survey (DCS) showed that the growth in domestic liquidity slowed down even on a monthly basis, reaching P2.9 trillion.

According to the BSP, foreign exchange inflows continued to be the main driver behind the growth in domestic liquidity, held in check only by the central bank’s four month-old mopping-up operations.

The pace of domestic liquidity expansion would be critical when the Monetary Board (MB) of the BSP conducts its last policy meeting for the year this month.

Thus far, the MB has stuck to its position that its current settings were appropriate and its mopping-up operations still necessary as foreign exchange continued to flood into the country in the form of investments and remittances.

The BSP reported that net foreign assets of depository corporations continued to drive domestic liquidity growth, although at a slower pace of 32.2 percent year-on-year from 39.7 percent in August.

What tempered domestic liquidity growth, according to BSP Governor Amando M. Tetangco Jr., was the fall in net domestic assets which declined by 5.1 percent as the Net Other Items account continued to reflect a negative balance following the policy measures implemented by the BSP in May.

This account includes the BSP’s special deposit accounts and reverse repurchase accounts.

According to the BSP, the growth of credit extended to the public sector also slowed down to 11.6 percent from 15.6 percent in August, even as the growth of credit extended to the private sector continued to pick up at 8.5 percent from 7.4 percent in the previous month.

“The BSP will continue to monitor monetary developments to ensure that the level of domestic liquidity is supportive of sustainable economic expansion while being consistent with the objective of price stability,” said Tetangco.

The BSP said it was expecting domestic liquidity growth to stay under 20 percent for the rest of the year and until 2008, in line with the projected economic growth rate.

Based on the projected economic growth target for this year and 2008, Tetangco said the current growth trajectory for domestic liquidity would be sufficient to meet the demand for money supply without creating inflationary pressures.

“It is also in line with the financial innovation we are experiencing in the market,” Tetangco said.