Money supply growth fastest in 6 years

MANILA, Philippines — Money supply grew at a fastest pace in almost six years in May as measures to soften the impact of the COVID-19 pandemic released more cash into the financial system, according to the Bangko Sentral ng Pilipinas (BSP).

BSP Governor Benjamin Diokno said domestic liquidity grew faster at 16.6 percent to P13.68 trillion in May from P11.74 trillion in the same month last year as the demand for credit remained the principal growth driver.

This was faster than the 16.2 percent growth booked in April.

Preliminary data showed domestic claims rose by 16.2 percent in May from 15 percent in April due mainly to the sustained growth in credit to the private sector.

Likewise, net claims on central government jumped by nearly 60 percent in May, faster than the 46 percent growth in the previous month due to increase in domestic borrowings by the national government.

Net foreign assets in peso terms expanded by 12.1 percent in May, as the BSP’s NFA position continued to expand to reflect the rising gross international reserves following deposit by the national government of proceeds of more foreign exchange borrowings to combat the COVID-19 pandemic.

Diokno said the continued stabilization of domestic liquidity conditions has given the BSP some room to gradually rescale its monetary operations, while maintaining the accommodative stance of monetary policy.

“This will help the BSP’s earlier liquidity measures gain further traction by providing better guidance to short-term market interest rates. Going forward, the BSP will continue to monitor domestic liquidity and credit dynamics as the economy transitions towards new normal conditions,” Diokno said.

Michael Ricafort, chief economist at Yuchengco-led Rizal Commercial Banking Corp. (RCBC), said liquidity growth in May was the fastest in nearly six years or since August 2014 due to the continued increase in excess peso liquidity in the local financial system largely brought about by various measures by the BSP.

COVID-19 measures undertaken by the BSP in recent months have unleashed P1.6 trillion into the financial system.

Ricafort said liquidity could further pick up in the coming months with the possible further reduction in the level of deposits banks are required to keep with the central bank, as well as the P100 billion worth of government securities maturing in August.

However, Ricafort said the planned retail treasury bond issuance by the government in the middle of the month could effectively reduce some of the liquidity in the financial system.