Domestic liquidity up 38.6% to P6.911 T in Jan

MANILA, Philippines - Domestic liquidity expanded 38.6 percent to P6.911 trillion in January from P4.985 trillion a year ago, the Bangko Sentral ng Pilipinas reported over the weekend.

The latest growth rate was the highest ever recorded. However, the M3 level in January was slightly lower than the P6.937 trillion recorded in December last year.

“Money supply continued to expand due to higher demand for credit in the domestic economy,” the central bank said as domestic claims went up 16.2 percent to P6.149 trillion.

BSP Governor Amando M. Tetangco Jr., in an interview, said that the faster pace of increase in money supply was due to the BSP’s earlier operational adjustments on the SDA facility.

The central bank last year reduced interest rates on the SDA by a total of 150 basis points to two percent. The BSP also ordered the removal of all singular investment management accounts in the facility in November.

“The shift of SDA funds, particularly the funds under IMA from SDA to bank deposits automatically led to an increase in M3 or domestic liquidity,” Tetangco explained, noting deposits are captured in the M3, while those in the IMA are not.

The BSP wanted to flush out money parked in the SDA to encourage investors to put their funds in other activities that will benefit the economy.

“But what is important to emphasize is that a significant amount of those funds that migrated from the SDA came back to the BSP in the form of SDA placements by banks,” Tetangco said.

He added that as deposits grew, the banks’ reserve requirement kept with the central bank also rose.

“Moreover, a portion of the freed funds found themselves in the GS (government securities) market... at least part of the proceeds from the issuance of government securities are also deposited by the national government to the BSP,” Tetangco said.

The BSP monitors money supply to assess its impact on inflation as it is mandated by law to keep domestic prices stable.

Tetangco said the relatively high M3 growth in January did not contribute to the spike in domestic prices during the same month.

“If we look at how this M3 was utilized, a large part of that went to productive activities and therefore not inflationary,” Tetangco said.

“But having said that, we continue to run our models again and see if there is a threat to inflation coming from the liquidity side. We’ll be prepared to take action if there is or there could be possible inflationary pulses that can be generated from this,” he said. 

The BSP still sees domestic liquidity “normalizing” to around 12 to 14 percent toward the end of the year, Tetangco said.

The wide divergence between domestic and liquidity and bank loans is also expected to decrease once effects of the SDA refinements on M3 dissipates, he added.