Growth in the amount of cash circulating in the economy slowed in April as expected following the central bank’s move to mop up cash and keep price pressures in check.
Loans extended by banks, however, rose faster in the same month, indicating the sustained willingness to lend to businesses and households despite tighter financing conditions.
“With recent policy measures to adjust the reserve requirement of banks, the growth in domestic liquidity is expected to remain consistent with the current pace of activity in the real sector,” the Bangko Sentral ng Pilipinas (BSP) said on Friday.
Domestic liquidity grew by 32.1 percent in April, the BSP reported yesterday. This was slower than the 34.7-percent expansion seen the month before. The deceleration came about after the regulator decided to hike the amount of money banks were required to set aside as reserves.
The reserve requirement ratio for banks was raised by one percentage point to 19 percent in April. The BSP estimated that the hike in reserves could mop up P60 billion from the economy. An identical hike in reserve requirements was ordered last April.
Forcing banks to set aside additional reserves will reduce the amount of money available for loans to the public, curbing artificial demand that may be caused by excess cash in the system.
Although slower, the domestic liquidity, or M3, growth remains above what the BSP considers “normal.” M3 growth in the four months before the hike in reserve requirements averaged 11.65 percent.
High growth rates in the past months reflected the effect of the restrictions on individual investors’ access to the central bank’s special deposit accounts (SDA). These restrictions took effect in November 2013.
Despite tighter monetary conditions, outstanding loans of universal and commercial banks rose by 20.9 percent, slightly faster than the 20-percent growth the month before. Including placements with the central bank, loans were up 19.4 percent, accelerating from the 18.3 percent reported in March.
“The continued expansion in bank lending across sectors is expected to support the growth momentum of the economy,” the BSP said in a statement.