Money supply grows slower at 5.6% in March, says Bangko Sentral

The Bangko Sentral ng Pilipinas reported Tuesday that the amount of money circulating in the domestic economy grew at a slower pace of 5.6 percent in March down from 7.2 percent in February.

 

BSP Governor Amando Tetangco Jr. said in a statement the country's domestic liquidity, or M3, reached P4.535 trillion as of end-March. This is P242 billion higher than the year-ago level of P4.293 trillion.

 

Tetangco said the amount of money circulating in the financial system last March was P19 billion higher than the end-February level of P4.516 trillion. However, he stressed, “The continued growth in domestic liquidity indicates that liquidity in the financial system remains ample to fund the economy’s growth requirements.”

 

He pointed out that liquidity growth in March was moderated by the slower expansion in the net domestic credit. 

 

This, according to him, was due largely to higher national government deposits with the BSP, combined with the faster rise in the net of other items account including revaluation and capital and reserve accounts as well as placements in the central bank’s special depository account facility.

 

Data showed that the net foreign assets grew 11.8 percent to P3.245 trillion as of end-March from P2.903 trillion as foreign assets of the BSP increased by 14.3percent to P3.249 trillion from P2.843 trillion. This was due largely to sustained foreign exchange inflows from overseas Filipino remittances, foreign portfolio investments or "hot money,” and merchandise exports.

 

On the other hand, the net foreign assets of banks was cut by more than half to a deficit of P4.55 billion from P60.37 billion. This was due in part to the contraction in loan receivables from foreign banks.

 

Meanwhile, net domestic assets retreated by 4.2 percent to P2.37 trillion from P2.473 trillion given the faster expansion in the net other items account including revaluation and capital and reserve accounts as well as SDA placements of trust entities.

 

Liquidity growth is one of the important vehicles considered in determining the central bank’s monetary policy. At a time when the economy is booming and money supply is expanding rapidly, the central bank would normally step in to mop-up in order to ensure that inflation would not surge.

 

The BSP slashed the reserve requirement ratio by 300 basis points to 18 percent from the current level of 21 percent last April 6 to cushion the negative impact of amendments to its reserve requirement policy. The move released at least P100 billion worth of funds to the financial system.

 

Last year, the BSP raised the reserve requirement ratio for banks by a combined 200 percentage points bringing the level to 21 percent from 19 percent to curb additional inflationary pressures arising from excess domestic liquidity.

 

So far, the BSP has reduced interest rates by 50 basis points due to benign inflation outlook and fragile global economic growth. This brought the overnight borrowing rate back to a record low of 4 percent and the overnight lending rate at 6 percent. —DM/VS, GMA News