MANILA, Philippines - A Bangko Sentral ng Pilipinas official said yesterday liquidity growth is expected to continue slowing down throughout the year following the two reserve requirement ratio cuts enacted earlier by the Monetary Board.
“We don’t have the latest data yet but we saw a slowdown (from 36.1 percent in February) to 34.8 percent in March. We expect this will continue to go down,†BSP Deputy Governor Diwa C. Guinigundo said in a briefing.
The Monetary Board, during its policy meetings held in March and May, cut the reserve requirement ratio by a total of two percent, aimed at mopping up an estimated P120 billion in excess liquidity from the financial system.
The monetary actions were directed at pulling down M3 growth —the broadest measure of liquidity— as this remained above 30 percent since July last year.
“There are structural issues that have to be looked into and monitored… (Our next move) will depend on the data available by the meeting of the board next month,†Guinigundo noted.
M3 growth data for April will be released by the central bank on Friday, May 30. The Monetary Board, meanwhile, will revisit policy settings on June 19.
“By the beginning of second semester of 2014, we expect a more normal growth of domestic liquidity,†Guinigundo said. The BSP earlier this month sees liquidity growth settling between 15 percent and 17 percent by the end of the year.
M3 growth last year went up due to the central bank’s adjustments on the Special Deposit Account facility. SDA rates were slashed by a total of 150 basis points last year and access by trust departments were limited to flush out funds from the facility.
Monetary authorities have been monitoring liquidity growth as this may have an impact on domestic inflation.
Guinigundo stressed “actual inflation remains within the target range.†The BSP has forecast inflation to average 4.3 percent this year, above the midpoint of its three to five percent target range.
Inflation picked up to 4.1 percent in April from 3.9 percent in March amid higher food prices and an increase in utility rates. In the four months to April, the rate has averaged 4.1 percent.
In the latest Business Expectations Survey of the BSP, local firms said they expect inflation to continue accelerating this year, although remaining within the central bank’s target.
This is also consistent with the central bank’s survey of private sector economists, the BSP said.
“Stronger inflationary pressures are expected to stem from higher-than-expected increases in utility rates and weather-related increase in food prices,†the survey read.