Domestic Liquidity Growth Slows Down in December

Manila—(PHStocks)—Bangko Sentral ng Pilipinas (BSP)—Domestic liquidity (M3) growth eased to 32.7 percent year-on-year (y-o-y) in December 2013 from 36.5 percent in the previous month. On a month-on-month basis, seasonally-adjusted M3 decreased by 1.5 percent, reversing the 4.4-percent growth (revised) in the previous month.

The slower pace of increase in money supply is consistent with the expected normalization of M3 growth over the coming months following the completion of the operational adjustments in the BSP’s Special Deposit Account (SDA) facility in November 2013.

Money supply growth was driven largely by the sustained expansion in domestic claims, or credits to the domestic economy.  Domestic claims rose by 11.6 percent in December from 12.3 percent in November, buoyed by the continued increase in claims on the private sector (by 17.3 percent) due to the steady growth in bank lending. Meanwhile, the level of net claims on the central government was broadly steady relative to its level a year ago.

Net foreign assets (NFA) also expanded, but at a slightly slower pace of 10.1 percent y-o-y compared to the 10.9-percent growth recorded in the previous month. The BSP’s NFA position improved on the back of continued robust foreign exchange inflows coming mostly from overseas Filipinos’ remittances and BPO receipts. The NFA of banks likewise increased as banks’ foreign assets expanded at a faster pace relative to the growth in their foreign liabilities. Banks’ foreign assets expanded due mainly to the growth in foreign loans and receivables, while banks’ foreign liabilities rose on account of higher deposits and placements of foreign banks with local banks. Meanwhile, latest data showed that placements of foreign banks with their local branches have continued to decline.

Going forward, the BSP will continue to assess monetary conditions closely to ensure that liquidity dynamics stay supportive of economic activity. The BSP also stands ready to deploy appropriate measures as needed to ensure that liquidity conditions remain in line with the BSP’s price and financial stability objectives.