BSP’s moves to lower cost of funds take hold in March

The amount of money circulating in the local financial system rose sharply in the third month of 2020 as the central bank’s aggressive monetary easing policies began to make themselves felt on the Philippine economy, the latest data revealed.

According to the Bangko Sentral ng Pilipinas (BSP), domestic liquidity grew by 13.3 percent year-on-year to P13.1 trillion in March. This was faster than the 10.9-percent expansion in February. On a month-on-month seasonally adjusted basis, money supply increased by 2.4 percent.“Demand for credit remained the principal driver of money supply growth,” the central bank said in a statement, adding that domestic claims grew by 11.9 percent in March from 10.3 percent in February 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 real estate activities; financial and insurance activities; wholesale and retail trade, repair of motor vehicles; electricity, gas, steam and air conditioning supply; and information and communication.

Meanwhile, loans for household consumption eased due mainly to the slower growth in credit card and motor vehicle loans during the month. Net claims on the central government grew by 21.6 percent in March, faster than the 18.4-percent growth in the previous month, reflecting the increased borrowings by the national government.Net foreign assets, in peso terms, expanded by 9.1 percent year-on-year in March, following the 9.6-percent growth in February.

“The BSP’s net foreign asset position continued to expand, reflecting the increase in gross international reserves,” the central bank said. “The net foreign assets of banks also increased, as growth in banks’ foreign assets rose on account of higher interbank loans and deposits with other banks.”

Following the implementation of community quarantine protocols in March, the BSP deployed various measures to shore up domestic liquidity and support credit activity. These measures included reducing the policy rate by a total of 125 basis points since February 2020 and cutting reserve requirement ratios of universal and commercial banks and nonbank financial institutions with quasi-banking functions by 200 basis points. INQ