Growth in the country’s money supply accelerated to another record high in January amid high demand for loans to support the domestic economy’s expansion, central bank data showed.
The Bangko Sentral ng Pilipinas (BSP) said January numbers were also coming from a low base due to the slow growth in domestic liquidity in the same month a year ago.
Domestic liquidity or M3, referring to the amount of money circulating in the economy, rose 38.6 percent, higher than the 32.7 percent recorded in December. This also beat the previous record set in November when M3 rose 36.5 percent year-on-year.
“Money supply continued to expand due to higher demand for credit in the domestic economy,” the BSP said in a statement issued late Friday.
The acceleration in money supply growth comes amid concerns over rising consumer prices as a result of higher costs of basic commodities like food and fuel, which may be exacerbated by the increase in the amount of cash in people’s hands.
Inflation in January reached 4.2 percent—the fastest in two years. The BSP expects inflation to settle between 3.8 percent and 4.6 percent in February.
“The BSP will continue to assess the medium-term impact of strong monetary growth on the outlook for inflation as well as on financial prices,” the BSP said.
The uptick in M3 growth was mainly driven by higher bank lending for the month, the central bank said. In January, loans extended by the country’s major banks jumped 17.1 percent, faster than the 16.4-percent growth the month before.
Loans for production activities, which comprised more than four-fifths of banks’ aggregate loan portfolio, expanded further by 16.2 percent in January from 15.3 percent in December.
The expansion in production loans was driven primarily by increased lending to the following sectors: Real estate, renting and business services (which grew by 17.3 percent); electricity, gas and water (29.6 percent); wholesale and retail trade (16.2 percent); manufacturing (12.7 percent), and other community, social and personal services (46.5 percent).
“The sustained growth momentum of credit reflects the stable financial conditions and continued solid growth prospects of the domestic economy,” the BSP said in a separate statement.
Public sector credit also helped drive growth in domestic liquidity, reflecting higher spending by the national government for various projects.
Public sector credit climbed 15.2 percent due to withdrawals by the national government of its deposits with the BSP to fund the redemption of bonds and spending on public works projects.
Meanwhile, net foreign assets (NFA) in peso terms also expanded by 8.7 percent, reflecting in part the higher valuation of foreign assets due to the depreciation of the peso relative to year-ago levels.
BSP Governor Amando Tetangco Jr. said that inflation was expected to be consistently higher this year than last year’s average of 3 percent due to supply-side pressures, including disruptions caused by recent natural calamities.
Nonetheless, he stressed that inflation this year, which is expected to stay in the 4-percent territory, would remain manageable and within the official target of 3 to 5 percent. “We see inflation inching up but still remaining manageable over the policy horizon,” Tetangco said in a speech during an economic forum organized by Security Bank.
The BSP expects the Philippines to remain in the so-called “sweet spot” this year, with inflation staying within target even if economic growth stays robust. Tetangco said productive capacity and efficiency in the economy have improved over the years and these were the reasons why the rising demand for goods and services was not causing worrisome inflation.
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