Domestic liquidity (M3) grew by 23.0 percent year-on-year at end-June 2014 to reach P7.1 trillion. This increase was slower than the 28.4-percent expansion recorded in May. On a month-on-month basis, seasonally-adjusted M3 declined by 0.4 percent, following a zero growth in the previous month.
Money supply continued to expand due largely to the sustained demand for credit in the domestic economy. Domestic claims rose at a stronger pace of 13.0 percent in June reflecting the steady uptrend in lending to the private sector. The bulk of bank loans during the month was channeled to real estate, renting, and business services, utilities, wholesale and retail trade, manufacturing, as well as the agriculture sector. Similarly, public sector credit increased by 8.3 percent from a contraction of 0.2 percent in May as deposits of the National Government (NG) with the BSP increased at a slower pace as a result of the NG’s withdrawal of funds for the redemption of maturing government securities and the end-month release of the internal revenue allotment (IRA) funds to local government units.
Likewise, net foreign assets (NFA) in peso terms increased by 6.1 percent in June from 5.0 percent in the previous month. 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. In addition, the NFA increased partly on account of higher valuation of foreign assets due to the depreciation of the peso relative to year-ago levels.
As in previous months, the high—though decelerating—M3 growth reading in June continued to reflect in part 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 adjustments in reserve requirements as well as in the interest rate on the SDA facility that were implemented earlier are expected to help bring domestic liquidity growth in line with levels consistent with the pace of expansion of the real sector. Going forward, the BSP stands ready to undertake further measures as necessary to address potential risks to price and financial stability that could emanate from strong liquidity growth.