Money supply growth slows in Jan

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said yesterday the expansion of the liquidity in the financial system eased in January and remains consistent with the prevailing outlook for inflation and economic activity.

BSP Governor Amando Tetangco Jr. said money supply or M3 grew 12.4 percent in January, slower than the revised 12.7 percent expansion recorded in December.

Latest data from the central bank showed domestic liquidity amounted to P9.37 trillion in end-January, P1.03 trillion higher than the P8.34 trillion recorded in January 2016.

Monetary authorities continued to siphon off excess liquidity in the financial system through various tools introduced during the launching of the interest rate corridor (IRC) framework last June 3.

Tetangco said the growth in M3 remains consistent with the BSP’s prevailing outlook for inflation and economic activity.

“Going forward, the BSP will continue to monitor monetary conditions closely to ensure that domestic liquidity stays adequate to support the BSP’s price and financial stability objectives,” he said.

The BSP has set an inflation target of between two and four percent between 2017 and 2020. It expects inflation in February to range from 3.1 to 3.9 percent from 2.7 percent in January due to rising oil prices, fare hikes, and more expensive electricity rates.

Demand for credit remains the principal driver of liquidity growth in the financial system.

The BSP adopted the IRC framework in June last year as it implemented an operational adjustment in key policy rates to enhance the effectiveness of monetary policy.

The rate for the overnight lending facility was set at 3.5 percent instead of six percent while that of the overnight reverse repurchase rate was set at three percent instead of four percent. The rate for the overnight deposit facility was unchanged at 2.5 percent.

The IRC system calls for the shift to the use of floor and ceiling rates for short-term financing to be determined through the auction of seven- and 28-day deposit maturities initially set at once a week.

The TDF serves as the main tool for absorbing liquidity and promotes the establishment of benchmarks for short-term interest rates.

The bank regulator has maintained the volume of the term deposit facility (TDF) composed of seven and 28-day term deposits at P180 billion since December, six times the original volume of P30 billion when it was launched in June 8.

The level of liquidity is one of the factors being considered by the BSP’s Monetary Board aside from domestic demand and inflation in setting the country’s policy rates.