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More cash circulating now shows rate cuts working

By: - Reporter / @daxinq
/ 04:06 PM March 04, 2020

The amount of money circulating in the Philippine financial system is growing at a faster pace, according to new data from the Bangko Sentral ng Pilipinas (BSP), an indication that rate cuts made last year were having the desired effect of boosting the economy.

In a statement, the BSP said outstanding loans of universal and commercial banks, net of their short term with the BSP, grew by 11.6 percent last January, faster than the 10.9-percent expansion in December 2019.

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On a month-on-month seasonally-adjusted basis, commercial bank loans net of bank deposits with regulator grew by 1.5 percent.

Loans from universal and commercial banks for household consumption grew by 40.1 percent in January from 27.5 percent in December due to faster growth in credit card and motor vehicle loans during the month.

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Loans for production expanded at a rate of 8.8 percent in January 2020, lower than the reported growth in December 2019 at 9.1 percent.

The BSP said the sustained increase in production loans was driven primarily by lending to real estate activities (20.5 percent); financial and insurance activities (16.2 percent); electricity, gas, steam and air conditioning supply (8.2 percent); information and communication (18.6 percent); and construction (15.5 percent).

In 2019, the BSP reduced interest rates thrice in 25-basis point increments to spur lending as the inflation rate began to return to normal after hitting a nine-year high in 2018.

The regulator also reduced the amount of cash that banks are required to keep intqct in their vaults — the so-called reserve requirement ratio — by a total of 400 basis points since Governor Benjamin Diokno took office almost a year ago.

BSP data showed that bank lending to other sectors also increased during the month, except those to manufacturing (-2.9 percent), mining and quarrying (-11.6 percent), and other community, social and personal activities (-34.8 percent).

“The BSP will continue to ensure that the expansion in domestic credit and liquidity remains consistent with the BSP’s price and financial stability objectives,” the central bank said.

Initial data also showed that domestic liquidity — the amount of cash and “near-cash” items circulating in the local economy — grew by 11.9 percent year-on-year to about P12.8 trillion in January 2020, faster than the 11.3-percent expansion in December 2019.

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On a month-on-month seasonally-adjusted basis, money supply increased by 1.3 percent.

“Demand for credit remained the principal driver of money supply growth,” the BSP said, adding that domestic claims grew by 11.7 percent in January from 10.6 percent in the previous month due mainly to the sustained growth in credit to the private sector.

“Loans for household consumption increased due to faster growth in credit card and motor vehicle loans during the month,” the BSP added.

Edited by TSB
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TAGS: BSP, cash, Interest rates‎, Regulator
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