Money supply growth slowed in July

MANILA, Philippines–Money supply growth likely slowed down further in July due to recent moves to mop up liquidity from the economy, and as a result of base effects from last year.

After nearly a year of elevated growth rates, the expansion in the country’s domestic liquidity last month may have finally gone down to a more “normal” pace, which serves the requirements of the economy for cash without driving prices up.

“The goal of our policy action is to create an environment for a gradual M3 growth deceleration,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. told reporters.

In July of last year, money supply, or M3, started growing at above-normal rates due to the exit of cash from the BSP’s special deposit accounts (SDA).

The rapid withdrawals were caused by restrictions on individual investments from being parked in SDAs, one of the BSP’s main sterilization tools for mopping up liquidity from the economy. Banks were told to withdraw 70 percent of funds covered by the restrictions in July of 2013.

Money supply growth reached a peak of 37 percent in January of this year, more than double the 12 to 15 percent expansion the BSP considers “normal.”

A protracted period of high money growth may result in excess demand from consumers, which could lead to higher prices—a situation the BSP wants to avoid.

Inflation last month reached 4.9 percent, the highest in two and a half years.

“While lower M3 growth rates are our goal, we also don’t want this scale down to be too abrupt, such that it would choke economic growth,” Tetangco said.

Data on domestic liquidity growth and outstanding loans held by universal and commercial banks are scheduled to be released at the end of this week.

“We anticipate further moderation of M3 and loan growth,” ING economist Joey Cuyegkeng said in a note to investors earlier this week. He said M3 growth rates staying elevated would be a source of “concern” for market players.

In a separate note, First Metro Investments, one of the country’s leading investment lenders, said recent moves by the central bank would ensure that liquidity growth would remain in control.

Over the last four policy meetings, the BSP has moved to curb liquidity growth and anchor inflation expectations.

At its latest policy meeting, the BSP hiked benchmark interest rates for the first time since 2011.–Paolo G. Montecillo

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