MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) sees credit and liquidity in the Philippines remaining buoyant with a double-digit growth this year amid the volatile global financial market.
BSP Deputy Governor Diwa Guinigundo said the growth of liquidity in the financial system would be more or less about 11 percent this year due to the strong demand for loans.
“Liquidity continues to be buoyant. For June and July we expect domestic liquidity to grow by about 11.1 percent and 11.3 percent, respectively,” he said.
Latest data from the BSP showed money supply or liquidity grew 11.3 percent to P9.63 trillion in end-May from P8.65 trillion in end-May last year, while loans extended by banks grew 18.7 percent to P6.32 trillion from P5.32 trillion.
Strong demand for funds to bankroll the expansion program of corporate and individual borrowers continued to boost bank lending in the first five months of the year.
Statistics showed lending for production activities rose 17.6 percent to P5.59 trillion in end-May from P4.76 trillion in end-May last year. This accounted for 89.4 percent of the loans disbursed by Philippine banks.
“In other words, domestic credit continues to increase because there is demand for loans,” Guinigundo said.
The BSP shifted its monetary operations to an interest rate corridor (IRC) system in June last year to guide short-term market rates towards the BSP policy interest rate.
The IRC system consists of the overnight lending facility (OLF) and the overnight deposit facility (ODF), the overnight reverse repurchase rate facility, and the term deposit auction facility (TDF).
The TDF, formerly the special deposit account (SDA) facility) consisting of seven- and 28-day term deposits serve as the main tool for absorbing liquidity in the financial system.
Guinigundo explained the TDF was able to siphon off more than P500 billion from the SDA while more than P400 billion were released to the financial system.
According to the BSP official, the additional liquidity went into various government securities such as treasury bills, treasury bonds, and retail treasury bonds.
Guinigundo said the robust domestic demand and benign inflation environment has allowed the BSP to keep an accommodative policy stance since September 2014 when it raised interest rates.
The dovish stance of monetary authorities was maintained amid the global volatile financial market due to the series of rate hikes by the US Federal Reserve, the decision of United Kingdom to leave the European Union, the protectionist policies of US President Donald Trump as well as domestic developments including the declaration of martial law in Mindanao.