The amount of cash circulating in the Philippine financial system grew at a slower pace in October, according to the central bank, providing an early indication that economic managers’ efforts to contain the country’s high inflation rate are starting to take hold.
At the same time, however, data from the Bangko Sentral ng Pilipinas show that bank lending—usually the first casualty of antiinflationary interest rate hikes—continued to grow at a robust pace during the period, boding well for economic growth overall.
In a statement, the BSP said that domestic liquidity grew by 8.2 percent year-on-year to P11.1 trillion in October 2018, slower than the 9.8-percent expansion in the previous month.
On a month-on-month seasonally-adjusted basis, money supply decreased by 0.1 percent.
Money supply, or “M3” in economic shorthand, refers to the total amount of cash and “near cash” items like marketable securities circulating in the financial system.
A high level of liquidity feeds inflation as more cash chase the same amount of goods, driving prices higher, while low liquidity has the opposite effect.
These levels are controlled by the central bank’s interest rate policy.
According to the BSP, demand for credit remained the principal driver of money supply growth during the period.
Domestic claims grew by 15.2 percent in October, faster than the 14.8-percent growth in September 2018 due mainly to the sustained growth in credit to the private sector.
Loans for production activities continued to be driven by lending to key sectors such as financial and insurance activities; wholesale and retail trade, repair of motor vehicles and motorcycles; real estate activities; manufacturing; electricity, gas, steam and air conditioning supply; and construction.
The growth in loans for household consumption slowed down owing to the slower expansion in credit card loans, motor vehicle loans as well as the contraction in salary-based general purpose consumption loans and other types of household loans. Net claims on the central government grew by 11.3 percent in October, broadly steady from 11.4 percent in the previous month.
Meanwhile, preliminary data show that outstanding loans of commercial banks, net of banks’ deposits with the BSP, grew at a slightly faster rate of 18.1 percent in October from 17.6 percent in September. Likewise, the growth in bank lending inclusive of these deposits accelerated to 17.9 percent in October from 16.5 percent in the previous month.
Loans for production activities—which comprised 88.7 percent of banks’ aggregate loan portfolio—increased at a brisker pace at 18.7 percent in October from 17.4 percent in the previous month.
The growth in production loans was driven primarily by increased lending to the following sectors; financial and insurance activities (32 percent); wholesale and retail trade, repair of motor vehicles and motorcycles (19.9 percent); real estate activities (15.4 percent); manufacturing (20.6 percent); electricity, gas, steam and air conditioning supply (11.9 percent); and, construction (39.1 percent).
Bank lending to other sectors also increased during the month.
“The BSP will continue to closely monitor domestic liquidity dynamics to ensure that monetary conditions remain supportive of the [its] price and financial stability objectives,” the central bank said.