Money supply expands 12% to P9.5 T

MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) said yesterday the expansion of the liquidity in the financial system remains consistent with the prevailing outlook for inflation and economic activity.

Diwa Guinigundo, BSP officer-in-charge, said money supply or M3 grew 12.4 percent in December from the 12.7 percent expansion in November.

Latest data from the central bank showed domestic liquidity amounted to P9.47 trillion in end-December, P1.04 trillion higher than the P8.43 trillion recorded in December 2015.

Monetary authorities continued to siphon off excess liquidity in the financial system through various tools introduced during the launching of the interest rate corridor (IRC) framework last June 3.

Guinigundo said the expansion in M3 remains consistent with the BSP’s prevailing outlook for inflation and economic activity.

 “Going forward, the BSP will continue to monitor monetary conditions closely to ensure that overall domestic liquidity dynamics stay in line with the BSP’s price and financial stability objectives,” Guinigundo said.

Demand for credit remains the principal driver of liquidity growth in the financial system.

Last June, the central bank adopted the IRC framework as it implemented an operational adjustment in key policy rates to enhance the effectiveness of monetary policy.

The rate for the overnight lending facility was set at 3.5 percent instead of six percent while that of the overnight reverse repurchase rate was set at three percent instead of four percent effective. The rate for the overnight deposit facility was unchanged at 2.5 percent.

The IRC system calls for the shift to the use of floor and ceiling rates for short-term financing to be determined through the auction of seven- and 28-day deposit maturities initially set at once a week.

The TDF serves as the main tool for absorbing liquidity and promotes the establishment of benchmarks for short-term interest rates.

The bank regulator has maintained the volume of the term deposit facility (TDF) composed of seven- and 28-day term deposits at P180 billion since December, six times the original volume of P30 billion when it was launched in June 8.

The level of liquidity is one of the factors being considered by the BSP’s Monetary Board aside from domestic demand and inflation in setting the country’s policy rates.