Money supply expands 13.2% to P9.88 T

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said yesterday liquidity in the financial system continued to post double-digit growth in June amid the strong demand for credit.

BSP Governor Nestor Espenilla Jr. said money supply or M3 expanded faster at 13.2 percent in June from the revised 11.3 percent in May.

“Demand for credit remained the principal driver of money supply growth,” he said.

Espenilla pointed out the amount of money circulating in the financial system reached P9.88 trillion in end-June, P1.15 trillion higher than the P8.73 trillion in end-June last year.

He said the expansion of M3 continues to be manageable and consistent with the BSP’s current outlook for inflation and economic activity.

The BSP has set an inflation target of two to four percent but expects inflation to average 3.1 percent this year and three percent in 2018 and 2019.

Economic managers, on the other hand, see the gross domestic product expanding between 6.5 and 7.5 percent this year and seven to eight percent in 2018.

“Moving forward, the BSP will continue to monitor monetary conditions closely to ensure that overall domestic liquidity dynamics stay in line with the BSP’s price and financial stability objectives,” he said.

Authorities continued to siphon off excess liquidity in the financial system through various tools introduced during the launching of the interest rate corridor framework in June last year.

The BSP has retained the volume of the term deposit auction facility (TDF) at P180 billion, consisting of P150 billion in 28-day term deposits and P30 billion in seven-day term deposits despite the undersubscription of both tenors.

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

“A review is coming up soon, so this is information. We cannot tweak week per week. We’re evaluating liquidity conditions. It’s not straightforward so you cannot just react,” the BSP chief said.

Espenilla is set to preside over his first rate-setting meeting as BSP governor and chairman of the Monetary Board on Aug. 10.

“We’ll have the opportunity to decide if settings are right this coming six week review. Let’s wait first for that event,” he added.

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