Money supply growth slows

As dollar inflows slowed down dramatically this year, the Bangko Sentral ng Pilipinas (BSP) reported a corresponding slowdown in domestic liquidity growth to 4.1 percent in July, lower than the 5.1 percent growth in June.

Domestic liquidity growth has been under tight watch since last year when a strong dollar surge pushed it up to the level that required the central bank to start mopping up excess liquidity.

This year, however, the BSP said domestic liquidity has been slowing down, taking away at least one factor that could have aggravated the country’s rising inflation rate.

Based on the BSP’s Depository Corporations Survey (DCS) domestic liquidity or M3 grew 4.1 percent year-on-year in July 2008.

The BSP said the data were generated from the Financial Reporting Package (FRP), the new system of bank reports that is consistent with the International Accounting Standards (IAS) and International Financial Reporting System (IFRS).  

The decline in domestic liquidity growth indicated that, on top of easing oil prices, the BSP would have an even bigger room to maneuver its monetary policy settings, possibly the current cycle of monetary tightening.

According to the BSP, the expansion in domestic liquidity continued to be driven by net foreign assets (NFA) which grew 12.5 percent in July, although lower than the 17.7 percent growth posted in June.

Net domestic assets (NDA), on the other hand, grew marginally by 0.4 percent in July—a slowdown from the previous month’s growth of 1.5 percent—as the growth of net domestic credits (at 5.9 percent) was more than offset by the decline in the Net Other Items account, which dropped 22.3 percent.

Net claims on the public sector fell 6.6 percent in July despite the increase in lending to local governments and other public entities, as the increase in credits to the National Government (NG) was offset by the buildup in NG’s deposits with banks.

By contrast, the BSP said credits extended to the private sector increased 12.8 percent in July from 11.8 percent in June, sustained partly by production loans to the agriculture and utilities sectors.

BSP Governor Amando M. Tetangco Jr. said that as a leading indicator of future economic activity, domestic liquidity provided insights on depository corporations’ financial intermediation activities in support of economic growth.