Money supply growth slowed in January as SDA deposits rose
MANILA, Philippines–Money supply growth slowed in January as more cash was parked in the central bank’s special deposit accounts (SDA) and due to the base effects of last year’s record-high expansion.
Data released by the Bangko Sentral ng Pilipinas (BSP) showed that domestic liquidity growth had continued to reflect effects of previous moves by monetary authorities to mop up cash from the economy.
Bank lending also slowed during the month but still grew at a healthy-enough pace to meet the economy’s demands for credit.
“Domestic liquidity has continued to grow at a moderate pace during the month due in part to the increase in placements of trust entities in the BSP’s SDA facility relative to a year ago,” the BSP said in a statement.
In January, the amount of cash circulating in the economy, referred to as M3, grew by 7.7 percent, slowing from 11.3 percent in December last year and 38 percent in January 2014.
Money supply continued to increase due largely to sustained demand for credit, the BSP said.
The BSP last year tightened monetary policy settings to combat rising inflation, which was partly fueled by excess cash in the economy.
The BSP last year increased the SDA yields by half a percentage point across the board, which encouraged banks to keep more cash idle in central bank vaults.
The M3 growth in January 2015 also reflects statistical base effects associated with the significant increase in domestic liquidity a year ago of 38 percent. This follows the operational adjustments involving access of trust entities to the SDA facility, which were completed in November 2013.
Monetary authorities closely monitor domestic liquidity growth levels to ensure that demand conditions stay supportive of a stable inflation. In January, inflation averaged 2.4 percent—the slowest since 2009.
“The BSP will continue to keep a close eye on monetary dynamics and remain prepared to take appropriate measures if needed to ensure that liquidity stays sufficient to support the growth requirements of the economy,” the statement read.
In the meantime, in a separate statement, the BSP reported that outstanding loans of commercial banks, net of reverse repurchase (RRP) placements with the BSP, grew at a slower pace of 17.3 percent in January from 19.9 percent in December.
Loans for production activities—which accounted for about four-fifths of the banks’ aggregate loan portfolio—expanded by 16 percent in January from 18.7 percent in December.
“The sustained expansion in bank lending amid adequate liquidity continues to provide a meaningful boost to domestic economic activity,” the BSP said.
