Domestic Liquidity Rises Further in November

Manila—(PHStocks)—Bangko Sentral ng Pilipinas—Domestic liquidity (M3) increased by 36.5% year-on-year (YoY) at end-November 2013 to reach PhP6.7 trillion. The increase was moderately faster than the 32.5-percent expansion recorded in October. On a month-on-month basis, seasonally-adjusted M3 increased similarly at a faster pace of 4% from 2.1% (revised) in the previous month.

Money supply growth was driven largely by the sustained expansion in domestic claims, or credits to the domestic economy.  Domestic claims grew by 12.3% in November from 11.6% in October owing to the continued increase in claims on the private sector (by 18%) reflecting the steady growth in bank lending. Meanwhile, net claims on the central government rose modestly by 0.9% in November, largely as a result of the increase in credits to the National Government.

Net foreign assets (NFA) also expanded by 10.9% YoY, similar to the 10.5% growth recorded in the previous month. The BSP’s NFA position improved on the back of robust foreign exchange inflows from overseas Filipinos’ remittances, BPO receipts, and portfolio investments. The NFA of banks likewise increased as banks’ foreign assets increased 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. It was also noted that placements of foreign banks with their local branches have declined.

The BSP’s operational adjustments in its SDA facility also contributed to the M3 increase in November. It will be recalled that in accordance with the revised BSP SDA guidelines, the BSP has required trust entities to reduce their SDA placements by November 2013. M3 growth thus is expected to normalize over the next few months after these adjustments are completed.

Going forward, the BSP will continue to monitor the potential impact of strong liquidity growth on the outlook for inflation as well as on financial asset prices. The BSP stands ready to deploy appropriate measures as needed to ensure that liquidity conditions continue to be in line with the BSP’s objective of maintaining price and financial stability conducive to sustainable economic growth.