Money supply expands 13% in 9 months

MANILA, Philippines - Liquidity remained ample as the private sector drove up credit growth with more loans as of the third quarter, boosting chances of sustained strong economic expansion.

Money supply – as measured by M3 – grew 12.6 percent to P8.8 trillion in the first nine months of the year, the Bangko Sentral ng Pilipinas (BSP) reported.

The growth rate was faster than the revised 11.9 percent recorded by the end of August. M3 measures liquidity in the financial system that covers currency in circulation, bank deposits and short-term borrowings.

“Demand for credit remains the main driver of money supply growth...(which was) due largely to sustained growth in credit to the private sector,” BSP Governor Amando Tetangco Jr. said in a statement.

“The continued expansion of M3 affirms the BSP’s assessment that liquidity conditions remain manageable and supportive of non-inflationary growth,” he added.

Separately, he said bank loans, exclusive of reverse repurchase agreements (RRPs), also went up by a faster 17.7 percent to P5.41 trillion. Last August, growth was at 17.3 percent.

Credit is usually channeled from banks to consumers and investors borrowing money to finance economic activity from credit card purchases to long-term solid investments like infrastructure.

BSP watches money supply level as too much credit could fuel demand that may stoke inflation and financial bubbles. When needed, it tries to lure more funds to RRPs, which are deposits with BSP paid with interest.

But from January to September, BSP data showed RRPs actually declined for the second straight period by 4.2 percent. By end-August, it already decreased 5.3 percent.

The decline showed more funds were actually withdrawn from the BSP, probably to finance more loans.

Broken down, data showed loans for production activities rose 17.3 percent, while those for household consumption expanded 21.7 percent.

For the former, growth was driven by the double-digit rise in credit to sectors led by information and communication at 37.2 percent, power, gas and steam (27.5 percent), real estate (19.2 percent) wholesale, retail trade, and sale of motor vehicles (13.2 percent) and manufacturing (12.5 percent).

On the flip side, declines were recorded by the mining and quarrying and public administration, defense and social security sectors. They were down 3.5 percent and 5.9 percent, respectively.

Meanwhile, salary and auto loans led household credit, rising by half and a third from last year, respectively.

Aside from the private sector, the government also contributed to credit expansion by using its own money, Tetangco said.

“Net claims on the central government picked up by 23.1 percent from 18.5 percent a month earlier as a result of continued withdrawals of the National Government of its deposits with BSP, “ he said.

Strong credit growth bodes well with over-all economic expansion. Growth, as measured by gross domestic product (GDP), rose 6.9 percent in the first half, near the high-end of the revised six- to seven-percent target for the year.

Third-quarter GDP data will be reported late next month.

“Going forward, the BSP will continue to ensure that domestic credit and liquidity conditions will keep pace with over-all economic growth, while remaining consistent with its price and financial stability mandates,” Tetangco said.