Domestic liquidity grew by 18.5% in August

MANILA, Philippines–Money circulating in the economy grew by a faster pace in August, bucking the trend of steady decline since the start of the year as demand for credit rose, data released this week showed.

The Bangko Sentral ng Pilipinas (BSP) said the expansion in domestic liquidity, or M3, remained in line with the country’s current economic growth trajectory.

But monetary officials are ready to deploy additional measures to keep prices in check, it added.

“Money supply continued to increase due largely to the sustained demand for credit in the domestic economy,” the BSP said in a statement late Tuesday.

M3 grew by 18.5 percent in August, faster than the revised 17.9-percent expansion in July, the BSP reported. This expansion was still above the 12- to 15-percent range the BSP considered “normal” for the country’s current pace of growth.

On a month-on-month basis, the seasonally adjusted M3 increased by 0.8 percent, following the (revised) 2.3-percent growth of the previous month.

This came as growth in outstanding loans held by universal and commercial banks slowed to 20.2 percent, from the 21.1 percent seen the month before.

“The sustained expansion of bank lending reflects the buoyant growth of the economy,” the BSP said.

Growth in M3 peaked in January, reaching over 37 percent. This followed a total ban on individual investors’ access to the BSP’s special deposit account facility.

Monetary authorities have been tightening policy settings since April, partly to keep excess liquidity from upsetting inflation expectations. The most aggressive of the BSP’s recent moves came last month when it hiked both policy rates and yields on special deposit accounts at the same time.

“Going forward, the BSP remains prepared to deploy all necessary measures to ensure that liquidity conditions continue to be in line with the BSP’s objective of maintaining price and financial stability,” the central bank said.

The BSP’s main role is to protect the peso’s purchasing power by keeping consumer prices stable. Inflation is expected to settle between 4.1 and 4.9 percent in September, from 4.9 percent in August.