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Domestic Liquidity Growth Eases Further in May


Domestic liquidity (M3) grew by 28.4 percent year-on-year at end-May 2014 to reach P6.9 trillion. This increase was slower than the 32.1-percent expansion recorded in April. On a month-on-month basis, seasonally-adjusted M3 was broadly steady, following the revised 0.3-percent rise in the previous month.

Money supply continued to expand due to the sustained demand for credit in the domestic economy. Domestic claims rose by 11.8 percent in May as bank lending growth accelerated further.  The bulk of bank loans during the month was channeled to utilities, real estate, renting, and business services, wholesale and retail trade, manufacturing, as well as financial services sectors. Meanwhile, public sector credit contracted by 0.2 percent as the deposits with the BSP of the National Government (NG) increased.  The rise in NG deposits with the BSP in May reflected in part the proceeds from the auction of government securities as well as revenue collections from various agencies.

Net foreign assets (NFA) in peso terms increased by 5.0 percent partly on account of higher valuation of foreign assets.  The value of foreign assets fetched higher during the month  due to the depreciation of the peso relative to year-ago levels. In addition, the BSP’s NFA position rose slightly on the back of sustained foreign exchange inflows coming mostly from overseas Filipinos’ remittances, business process outsourcing receipts, and portfolio investments. At the same time, the NFA of banks increased as banks’ foreign assets expanded at a faster pace relative to that of their foreign liabilities. Banks’ foreign assets expanded due mainly to the growth in foreign loans and receivables. Meanwhile, banks’ foreign liabilities rose on account of higher deposits of foreign residents.

As in previous months, the strong—though decelerating—M3 growth reading in May continued to reflect the decline in the Special Deposit Account (SDA) placements of trust entities compared to their levels a year ago, in line with the BSP’s operational adjustments in the SDA facility.

The recent increase in the interest rate on the SDA facility as well as the earlier adjustments in the reserve requirement of banks are seen to help mitigate potential risks to price and financial stability that could emanate from strong liquidity growth. Going forward, the BSP stands ready to undertake further measures as necessary to ensure that liquidity dynamics stay in line with the BSP’s price and financial stability objectives.

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