Domestic liquidity growth further slows

MANILA, Philippines - Domestic liquidity growth slid below 10 percent in November, reflecting the adjustments made by the Bangko Sentral ng Pilipinas in banks’ reserve requirement ratios and in the special deposit account (SDA) rate.

M3 – the broadest measure of liquidity – expanded nine percent to P7.304 trillion in November from P6.7 trillion in the same month a year ago. The rate was a further deceleration from 15.4 percent in October and 16.2 percent recorded in September.

 “Money supply continued to increase due largely to the sustained demand for credit,” the BSP said.

Domestic claims went up 17.6 percent to P6.756 trillion in November due to the increase in loans extended to the private sector.

The central bank noted bulk of the loans went to the real estate, renting, and business services, wholesale and retail trade, manufacturing, financial intermediation, utilities, and transportation, storage and communication sectors.

Public sector loans, meanwhile, climbed 14.6 percent to P1.857 trillion on a rise in investments in government securities.

BSP data also showed net foreign assets increased two percent to P3.657 trillion in November.

Banks’ net foreign assets rose as their assets grew at a faster pace compared to the expansion in their liabilities, while such of the BSP’s contracted versus a year ago on lower gross international reserves.

The central bank earlier in the year raised the banks’ reserve requirements by 200 basis points and the SDA rate by 25 basis points to pull down the relatively high liquidity growth.

M3 growth hit 30 percent in July 2013 and remained above that level for nine more months following a 150-basis point reduction in the SDA rate in early 2013 and the restriction of investment management accounts or singular fund accounts offered to retail investors in the same facility.

The BSP has discouraged parking funds in the SDA so investors would instead put their money in activities and instruments that will benefit the domestic economy.

“Going forward, the BSP remains prepared to take appropriate action as necessary to ensure that liquidity conditions continue to support the BSP’s objectives of maintaining price and financial stability,” the central bank said.