Growth in money supply decelerated in June

Growth in the country’s money supply slowed anew in June, reflecting the effects of tighter policy settings set by the Bangko Sentral ng Pilipinas (BSP), data released Thursday showed.

At a press conference, BSP Deputy Governor Diwa C. Guinigundo said domestic liquidity growth was expected to slow further in the coming months, citing “base effects” from last year, when the rate of increases started going up.

Previous policy moves implemented earlier “are expected to help bring domestic liquidity growth in line with levels consistent with the pace of expansion of the real sector,” the BSP said in a statement.

Domestic liquidity, or M3, growth slowed to 23 percent in June from 28.4 percent the month before, according to data released by the BSP.

M3 refers to the amount of money circulating in the economy.

The central bank still considers the growth in liquidity to be “elevated.” The exit of cash placed in the BSP’s Special Deposit Account (SDA) last year led to the high growth rates. At the time, the central bank imposed a ban on the access of non-pooled funds to the SDA facility.

“As in previous months, the high—though decelerating—M3 growth reading in June continued to reflect in part the decline in SDA placements of trust entities compared to their levels a year ago,” the BSP explained.

Liquidity growth reached a record high of 37 percent in January, forcing the central bank’s hand. In April and May, banks were told to set aside more of their clients’ deposits as reserves. In June, rates for SDAs were hiked by 25 basis points.

“Those moves are aimed at curbing liquidity and anchoring inflation,” Guinigundo said.

Too much liquidity in the economy may fuel consumer demand and, in turn, will push consumer prices up. This runs counter to the BSP’s goal of protecting the public’s purchasing power by keeping prices stable.

“The BSP stands ready to undertake further measures as necessary to address potential risks to price and financial stability that may emanate from strong liquidity growth,” the BSP statement read.