BSP to hold rates despite faster growth in credit, money supply
By Melissa Luz T. Lopez,
Senior Reporter
THE CENTRAL BANK would not have to tighten interest rates amid sustained double-digit growth in money supply and bank lending with the rapid expansion seen unlikely to drive prices higher, a senior official said.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said the central bank expects domestic liquidity to have grown by 11.1% in June and by 11.3% this month, sustaining double-digit increases although milder than the 12.4% climb recorded in May.
“While domestic credit continues to increase because there is demand for loans, domestic liquidity I think will continue to be stable at more or less 11%,” Mr. Guinigundo said in briefing last week at the central bank headquarters in Manila.
Domestic liquidity grew by 11.3% in May from a year ago as total money in circulation rose to P9.281 trillion, according to central bank data.
Money supply growth has been clocking in at double digits since January 2016. It previously hit a peak with a 38% surge tallied in January 2014.
Mr. Guinigundo said the rapid growth in money supply does not raise the alarm for the central bank to adjust policy rates just yet, as current liquidity levels are reflective of upbeat domestic activity.
The Philippine economy expanded by 6.4% during the first quarter, slower than the 6.6% growth logged during the fourth quarter and a tad below the government’s 6.5-7.5% growth goal. Still, the pace is among the fastest in Asia.
The surge in money supply is likewise unlikely to push prices upward, allowing the central bank to stand pat on monetary policy.
“At some point especially in our own dynamics, we are still an emerging economy and financial deepening continues to proceed. We can in fact tolerate a higher growth of money supply — let’s say 11%, 12%, 15%, and even 17% — without necessarily seeing a runaway inflation because the economy has a higher potential output,” Mr. Guinigundo added.
“We can accommodate a higher movement in terms of domestic liquidity without necessarily seeing that translated into higher inflation.”
The BSP has kept policy settings unchanged for 22 straight meetings following a hike in September 2014. Procedural cuts were introduced in June last year to usher in the shift to an interest rate corridor, with the benchmark borrowing rate currently at 3%.
Inflation has slowed to 2.8% in June since heating a peak of 3.4% in March and April. Price increases averaged 3.1% during the first half of 2017, matching the central bank’s estimate for the entire year.
