Money supply expands by a tenth

Posted on February 14, 2013

MONEY SUPPLY surged in 2012 as the Bangko Sentral ng Pilipinas (BSP) eased monetary policy to stimulate economic activity amid a weak global economy.

Domestic liquidity -- the broadest measure of money in the financial system -- grew by 10.6% year on year to P5.172 trillion as of December from P4.674 trillion in the same period in 2011. It was the fastest that money supply had expanded since June 2011 when it increased by 11.47%, data from the central bank showed.

Monetary authorities cut policy rates -- the benchmark for interest rates -- by a total of 100 basis points last year to encourage consumption and investment in support of the economy amid the global slump. Rates currently stand at record lows of 3.5% and 5.5% for overnight borrowing and lending, respectively. As households and businesses take out money from banks, it increases the supply of money in the country.

The rise in domestic liquidity in 2012 was driven by the 19.2% jump in net domestic assets -- mostly credits.

“Net domestic credits grew by 7.8%, buoyed by the expansion in the claims on the private sector due to robust lending activity by commercial banks,” the central bank said.

Net foreign assets declined by 0.1% with the continued increase in banks’ foreign liabilities. Foreign banks made higher placements and deposits with their local branches.

The BSP monitors domestic liquidity as too much money in the financial system can result in higher commodity prices. It aims to keep inflation within 3-5% this year, with a forecast of 3%.

“The continued expansion in domestic liquidity indicates that previous policy actions of the BSP to help support non-inflationary economic growth continue to work their way through the economy,” the BSP said.

“Going forward, the BSP will closely monitor monetary conditions to ensure that liquidity in the financial system remains supportive of economic activity to the extent that the inflation outlook will allow.”

Meanwhile, bank lending was just as robust in 2012, consistent with money supply.

Outstanding loans of universal and commercial banks, net of their reverse repurchase placements with the central bank, hit P3.244 trillion last year, 16.2% higher than the P2.791 trillion recorded in 2011. The growth rate was the fastest since April 2012 when loans increased by 19.2%.

Including reverse repurchase placements, outstanding loans totaled P3.48 trillion in 2012, 15.4% more than the P3.015 trillion reorded the year before.

Data showed that P2.962 trillion was issued for production activities. The largest recipients were real estate (P578.326 billion), manufacturing (P558.414 billion) and wholesale and retail trade (P474.6 billion).

Another P257.381 billion was released for household consumption loans.

Credit card loans accounted for P148.091 billion, while auto loans brought in P81.571 billion. Other loans added P27.719 billion. Placements in the reverse repurchase facility totaled P236.576 billion, while loans to non-residents hit P24.426 billion.

“The continued growth in bank lending, particularly to the productive sectors, is expected to support the growth momentum of the economy,” the BSP said. -- Diane Claire J. Jiao