Domestic Liquidity Continues to Expand in October

Manila—(PHStocks)—Bangko Sentral ng Pilipinas—Domestic liquidity (M3) increased by 32.5% year-on-year (y-o-y) at  end-October 2013 to reach P6.3 trillion. The increase was slightly faster than the 31.3-percent expansion (revised) recorded in September.

On a month-on-month basis, seasonally-adjusted M3 increased by 2%, similar to the expansion recorded in the previous month (based on revised numbers).

Money supply growth was driven largely by the sustained expansion in domestic claims, or credits to the domestic economy.  Domestic claims grew by 11.6% in October from 10.9% (revised) in September due to the continued increase in claims on the private sector (by 16.2%), in line with the sustained growth in bank lending. Meanwhile, net claims on the central government rose slightly by 0.5% in October, largely as a result of the increase in credits to the National Government.

Net foreign assets (NFA) also grew by 10.5% y-o-y from 7.7% in September. The BSP’s NFA position improved on the back of robust foreign exchange inflows from remittances, BPO receipts, and portfolio investments. The NFA of banks likewise increased as banks’ foreign assets rose due mainly to the growth in foreign loans and receivables, at the same time that banks’ foreign liabilities declined due to reduced placements and deposits of foreign banks with their local branches.

The BSP’s operational adjustments in its SDA facility also contributed to the M3 increase in October. 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 is expected to normalize over the next few months after these adjustments are completed. The temporary period of strong M3 growth is not expected to contribute to inflationary pressures, as latest baseline forecasts show that average inflation will continue to track the lower end of the inflation target in 2013, while the future inflation path for 2014-2015 will also remain within the target range.

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.

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