Money supply growth to decelerate further —Tetangco

The Bangko Sentral ng Pilipinas chief expects growth in money supply to decelerate to “normal levels” this year as effects of limits placed on short-term deposit facility wanes. 

 

With a growing economy absorbing money in the financial system, robust expansion in domestic liquidity will not stoke inflation nor fan asset prices to undesirable levels. 

 

“Rapid growth [in money supply] is therefore seen as only temporary and is not expected to translate to significant inflationary pressures or asset price misalignment,” Bangko Sentral Governor Amando Tetangco Jr. said in his speech at the Euromoney Philippines Investment Forum Tuesday. 

 

Growth in domestic liquidity as measured by M3 has been growing at multi-year highs since July last year, after the effects of caps on the central bank’s special deposits accounts (SDA) bit. 

 

The broadest measure of money, M3 includes currencies in circulation, bank deposits, and money market funds among other highly liquid assets.

 

M3 grew at an annualized 32.7 percent to P6.936 trillion in December. While still fast by regional and global standards, the growth rate in December is slower than the 36.5 percent in November.

 

Tetangco later told reporters that “historically” money supply growth hit around 12 to 14 percent. This, he noted, will again be seen within the year. 

 

Migration of funds from SDAs into bank deposits grew money available for lending, said the central bank chief. 

 

But banks remained prudent and kept tight lending standards. Whatever was left for lending was made available “for productive” purposes and has been “absorbed” by the domestic economy, Tetangco noted. 

 

While growth of a country's money supply drives economic growth, too fast an increase fans inflation.

 

Inflation hit a two-year high of 4.2 percent in January. This, however, is still well within the central bank's 3 to 5 percent target for the year. 

 

Emerging market rout

 

These sound macroeconomic fundamentals and stable banking system give the Philippine economy enough anchor to weather external headwinds amid the US Federal Reserve’s cut in stimulus. 

 

“We have confidence for emerging market hiccups,” said Tetangco. Emerging-market economies like Philippines have been under fire after the Fed cut its bond-purchases this month and the last. 

 

Investors pulled out money in emerging-market stocks, bonds and currencies on prospects of higher yields in the US.  

 

Tetangco, however, said the central bank is observing inflows of late. “Some calm has returned,” he said. 

 

Despite the worst being over, the central bank is still eyeing reforms in capital markets including bench marking of bond yields and overnight index swaps. 

 

“We must go beyond limitations and defy gravity,” he said. —KG, GMA News