Domestic liquidity posts record growth

The amount of money in the economy grew at a record high in November amid massive withdrawals of cash from the central bank’s special deposit accounts (SDA), data released last week showed.

The Bangko Sentral ng Pilipinas (BSP) late last week said domestic liquidity or M3 grew by a record 36.5 percent in November, coinciding with the start of the complete ban on all nonpooled funds from the central bank’s SDA window.

The growth in liquidity in November was faster than the 32.5-percent growth rate recorded the month before.

About P800 billion in cash were withdrawn by banks from the BSP’s SDA window since the ban on investment management accounts (IMA) was first announced in the first half.

The ban on nonpooled funds of individual investors in SDAs was first announced in May this year. The BSP said 30 percent of the covered funds had to be unwound by July 2013, while the remaining 70 percent was ordered withdrawn by November.

Apart from the ban on individual investments, the BSP also reduced interest rates on SDAs to a record low of 2 percent across all maturities, making it less profitable for investors to park their funds in the liquidity-management window.

“M3 growth is expected to normalize over the next few months after these adjustments are completed,” the BSP said in a statement.

Money in SDAs dropped from the peak of P2.2 trillion in April to P1.4 trillion at the end of November. These funds were transferred to bank time deposits and other investment instruments, the BSP Governor Amando M. Tetangco Jr. said.

The BSP said it would continue to monitor the potential impact of strong liquidity growth for inflation as well as on financial asset prices.

“The BSP stands ready to deploy appropriate measures as needed to ensure that liquidity conditions continue to be in line with the BSP’s objective of maintaining price and financial stability conducive to economic growth,” the central bank said.