MONEY SUPPLY growth picked up in April, even with demand for loans slightly easing prior to cuts in benchmark rates and banks’ reserve requirement ratio (RRR), the Bangko Sentral ng Pilipinas reported late on Friday.

Domestic liquidity or M3, which is the broadest measure of money in an economy, grew 7% year-on-year to about P11.7 trillion in April, faster than the upward-revised 6.1% expansion in March, latest BSP data showed.

Money supply also increased 1.5% month-on-month.

“Demand for credit eased slightly but remained the principal driver of money supply growth,” the central bank said in a statement.

Net claims on the central government expanded by 0.5% after posting an upward-revised 0.2% growth the previous month.

Meanwhile, domestic claims climbed 9.5% in April, slower than the upward-revised 9.8% in March, due to sustained credit growth to the private sector.

On the other hand, net foreign assets (NFA) expressed in peso terms expanded by 3.8% in April, faster than the upward-revised 2.1% in March, on the back of inflows such as remittances from overseas Filipino workers and business process outsourcing receipts.

By contrast, the NFA of banks declined as their foreign obligations increased due to higher placements and deposits made by offshore banks with their local branches and other lenders.

Meanwhile, bank lending slowed in April on lower demand for loans from the corporate and household sector.

Outstanding loans grew 12.7% in April, slower than the upward-revised 12.9% pace recorded in March. However, inclusive of reverse repurchase agreements, bank lending growth picked up to 12.8% from the upward-revised 11.5% in March.

Production loans accounted for the bulk of the credit at 88.2% even as growth eased to 12.4% in April from the upward-revised 12.8% in March.

Construction loans logged the highest increase at 48.9%, followed by financial and insurance activities at 28.8%; real estate activities at 13.9%; wholesale and retail trade, repair of motor vehicles and motorcycles at 11.9%; electricity, gas, steam and airconditioning supply at 11.2%; and manufacturing at 10.7%, BSP data showed

Loans for household consumption grew 15% in March, slightly lower than the upward-revised 15.1% in March, which the BSP attributed to slower expansion in salary-based general purpose consumption loans and other types of household loans during the month, which slightly offset faster growth in credit card and motor vehicle loans.

“Going forward, the BSP will continue to ensure that the expansion in domestic credit and liquidity remains consistent with promoting non-inflationary and sustainable growth,” the central bank said.

Sought for comment, Michael L. Ricafort, head of economics research division at the Rizal Commercial Banking Corp., said in a mobile message: “7% year-on-year [is] still among the slowest in nearly seven years on since August 2012 but already faster versus the upwardly revised 6.1% as of March 2019, but still much lower versus 14.2% a year ago.”

“Going forward, further declines in both inflation and local interest rates, partly due to increased peso liquidity after the RRR cuts and the 0.25-basis point (bp) cut in policy rates in May 2019 may fundamentally encourage faster growth in both M3 and bank loans in the coming months,” Mr. Ricafort added.

Inflation slowed down to a 16-month low of 3% in April, which allowed the BSP to cut its benchmark policy rates by 25 bps to a 4-5% range effective May 10.

The first round of reductions to lenders’ mandatory reserves also took effect last May 31, with the ratios now down to 17% for universal and commercial banks, 7% for thrift banks, and 4% for rural and cooperative banks.

Two 50-bp cuts will be implemented this month and in July to bring big banks’ and thrift banks’ RRR to 16% and 6%, respectively. — R.J.N. Ignacio