PH liquidity growth in May jibes with high inflation, BSP data show

Liquidity in the local financial system continued to grow in May due to strong bank lending, the Bangko Sentral ng Pilipinas said over the weekend, revealing a factor that might have aggravated the country’s high inflation rate during the same period.

In a statement, the central bank said domestic liquidity grew by 14.3 percent year-on-year to P11 trillion in May, slightly faster than the 14.2-percent expansion in the previous month. On a month-on-month seasonally adjusted basis, money supply expanded by 1.3 percent.

The amount of liquidity circulating in the financial system helps determine the pace of increases in the prices of basic goods and services. A large amount of liquidity aggravates inflation as more money chases the same amount of goods and services, giving sellers an incentive to raise prices.

The BSP said domestic claims grew by 16.8 percent in May, higher than the 16.4-percent increase in April due to sustained growth in bank lending.

“Growth in bank loans continued to be driven by lending to key production sectors such as wholesale and retail trade, repair of motor vehicles and motorcycles; real estate activities; financial and insurance activities; manufacturing; and electricity, gas, steam and air conditioning supply,” it said.

Likewise, net claims on the central government rose by 17.3 percent in May from 13.1 percent in April as a result of increased borrowings by the government.

Net foreign assets in peso terms grew by 5.4 percent year-on-year in May from 4.2 percent in the previous month.

Foreign exchange inflows coming mainly from overseas Filipinos’ remittances and business process outsourcing receipts drove the growth in the BSP’s net foreign assets position. The net foreign assets of banks also expanded as banks’ foreign assets increased on account of higher loans and investments in marketable debt securities.

Despite this, the central bank assured that the overall pace of growth in money supply “remains broadly in line with the BSP’s prevailing outlook for inflation and economic activity.”