OFW dollars boost domestic liquidity

Remittances from overseas Filipino workers (OFW) fueled the growth in domestic liquidity but there was a slight slowdown in growth to 14.1 percent in October from 14.8 percent a year ago.

Data from the Bangko Sentral ng Pilipinas (BSP) indicated that demand for money remained strong in October, with domestic liquidity or M3 rising year-on-year to P2.248 trillion.

Based on data from the BSP’s Depository Corporations Survey (DCS), the growth rate in October rate was slower than the 14.8 percent increase recorded in October last year. On a monthly basis, M3 expanded by 0.3 percent in October, compared to the 0.4 percent growth in the previous month.

According to the BSP, the sustained expansion in liquidity was traced mainly to the increase in foreign assets of the BSP coupled with a reduction in its foreign liabilities.

Fueled by strong capital inflows from overseas Filipino workers, portfolio and direct investments, the BSP said its foreign assets increased year-on-year by around 9.7 percent while its liabilities declined by more than 50 percent.

Net foreign assets of depository corporations also increased, according to the BSP, given the 2.9 percent expansion in their assets combined with a 5.1 percent decline in their liabilities.

The growth of domestic credits to both the public and private sectors also contributed to the expansion in domestic liquidity, the BSP said.

Public sector credits grew by 1.3 percent in October mainly on account of loans extended to the local government and other public entities, as securities issued by the NG rose by 2.4 percent.

On the other hand, private sector credits, which accounted for the bulk of the expansion in net domestic assets, expanded by 2.2 percent as banks resumed lending activities on improved bad loans ratios.

The BSP said it expected commercial bank lending to pick up as banks continue to unload their non-performing loans to clean up balance sheets with the proposed extension of the Special Purpose Vehicle Law.

BSP Governor Amando M. Tetangco said it would continue to monitor the level of domestic liquidity to ensure that it is consistent with the BSP’s price stability objective.

Tetangco said the BSP’s monetary policy stance would remain geared towards ensuring that emerging risks to inflation and inflation expectations are addressed in a timely and appropriate manner.

At the same time, Tetangco said monetary authorities would also ensure that the liquidity requirements of a growing economy are met, to further spur economic growth.