Money supply growth quickens to 20-month high — BSP

Ian Nicolas Cigaral - Philstar.com
benjamin diokno
This file photo shows Bangko Sentral Governor Benjamin Diokno.
Geremy Pintolo / File

MANILA, Philippines — Money supply growth accelerated to its fastest level in 20 months last January as bank lending hastened on the back of central bank cuts on interest rates and bank reserves still making their way to the economy.

Central bank data released Wednesday showed M3— the broadest measure of money supply, grew 11.9% year-on-year to P12.8 trillion in the first month of the year, faster than 11.3% expansion recorded in December. The latest reading was the fastest growth since May 2017’s 14.4%. 

“Demand for credit remained the principal driver of money supply,” the Bangko Sentral ng Pilipinas (BSP) said in a statement.

A separate BSP statement showed outstanding loans by big banks surged 11.6% year-on-year in January, up from 10.9% in the preceding month and was the fastest clip since May 2018’s 11.9%.

The latest rise in credit is a welcome development for BSP Governor Benjamin Diokno, whose appointment in March last year ushered in a dovish central bank that pursued 175 basis points in cuts to the policy rate and a 400-basis-point reduction in bank reserve requirements (RRR). BSP cut rates by 25 bps to 3.75% anew last January.

More space to provide stimulus

The BSP policy rate serves as a benchmark for lenders in setting interest for their loans, so lowering it was a signal for banks to make credit cheaper for borrowers. Meanwhile, decreasing the reserves allows banks to set aside more funds for lending. 

While BSP made the policy decisions last year, there is a typical lag, lasting months, between a change in policy and its full market implementation. 

Sought for comment, Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the BSP still has room to further ease monetary policy, an action already taken by the US Federal Reserve when it slashed policy rates by 50 bps on Tuesday to counter the effects of Coronavirus Disease-19 (COVID-19) on growth.

The BSP’s policymaking Monetary Board meets next to set policy on March 19, two weeks after the release of February inflation numbers when analysts expect an uptick, which typically signal regulators to halt policy easing or tighten rates if needed, to ensure prices do not go up as much.

“A mitigating factor on inflation would be the recent easing in global oil prices to 14-month lows, thereby another factor providing greater leeway for any further cut in local policy rates,” Ricafort said in a text message.

“Any further cut/s in RRR also still possible as this could be like a de facto stimulus measure to help spur greater economic activities and faster GDP (gross domestic product) growth…,” he added.

Households borrow more

According to BSP data, credit growth last January was mainly driven by loans extended to households — composed of debts incurred through credit cards and salary, auto and personal loans— which went up 40.1% year-on-year to P925 billion. The expansion was faster than 27.5% annual growth reported in December.

Meanwhile, credit extended to larger production activities grew at a slower pace of 8.8% year-on-year in January compared to December’s 9.1%.

Broken down, lower borrowings were incurred by industries led by community, social and personal activities which dropped 34.8% year-on-year. Manufacturing (-2.9%) and mining and quarrying (-11.6%) also dragged down production loans in January, data showed.

On the flip side, higher credit were availed by borrowers from real estate activities, where loans rose 20.5%, financial and insurance activities (16.2%), electricity, gas, steam and air conditioning supply (8.2%), information and communication (18.6%) and construction (15.5%).

“Going forward, the BSP will continue to ensure that the expansion in domestic credit and liquidity remains consistent with the BSP’s price and financial stability objectives,” BSP said.

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