BSP: Money supply growth fastest in 10 years

The rate of rise of the country’s money supply in August was the fastest seen in a decade due to the growth in loans of major banks and the release of cash from special central bank accounts, data released this week showed.

But the Bangko Sentral ng Pilipinas (BSP) stressed that it considered the high growth in liquidity to be a temporary situation and would not destabilize consumer prices that could threaten economic growth.

“Latest baseline forecasts of the BSP continue to indicate within-target inflation over the policy horizon amid the stronger pace of growth in domestic liquidity in the coming months,” BSP Governor Amando M. Tetangco Jr. said.

Domestic liquidity grew by 30.9 percent in August, accelerating slightly from 30.1 percent in July. It was the fastest rate of rise in ten years.

The BSP attributed the increase to the recent lapse of the deadline for banks to take out nonpooled funds from the central bank’s Special Deposit Accounts (SDA).

Because of the availability of ultra-cheap money and low yields in traditional investment instruments, more and more individual investors decided to turn to the BSP’s SDA facility—originally a tool for mopping up excess liquidity—to make a profit.

But last May, the BSP ordered banks to take out at least 30 percent of the funds of individual investors from SDAs by the end of July. The remaining 70 percent will have to be removed by November.

“As expected, the BSP’s operational adjustment in its SDA facility also contributed to the M3 increase in August,” Tetangco said.

Once the funds are drawn from SDAs, these would most likely be diverted to time deposit accounts in banks, which are counted in measuring M3.

Also contributing to the higher liquidity was the acceleration in loans extended by the country’s universal and commercial banks.

Bank loans in August increased by 14.2 percent, faster than the 12.3 percent increase in July, data from the BSP showed. Including reverse repurchase transactions with the BSP, bank loans increased by 13 percent, faster than the 11.7 percent of the previous month.

The BSP said most of the loans went to productive sectors of the economy—real estate, construction, wholesale and retail trade, and electricity, gas and water services.

“The sustained expansion in bank lending, particularly to productive services, is expected to support the growth momentum of the economy,” the central bank said.