MONEY SUPPLY growth quickened in January following the central bank’s easing stance in the previous year.

Domestic liquidity or M3, the broadest measure of money supply, expanded by 11.9% year on year to P12.8 trillion in January, slightly quicker than the downwardly revised 11.3% print in December, according to preliminary data released by the Bangko Sentral ng Pilipinas (BSP) on Wednesday.

Money supply has been growing at a faster pace for four straight months or since September last year.

Month on month, M3 inched up by 1.3%.

In a statement, the central bank said demand for credit was the “principal driver of money supply growth.”

Analysts attributed the quicker money supply growth to the easing stance by the BSP last year as it implemented several rate cuts and reductions to lenders’ reserve requirement ratios (RRR).

“This is the direct impact of expansionary monetary policy as the BSP, back in 2019, continued to cut RRP (reverse repurchase rate) and even RRR,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

“We saw that RRP (reverse repurchase) and RRR cuts working in tandem in 2019 proved optimal,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.

In 2019, the BSP cut key policy rates by a total of 75 basis points (bps).

“We expect the Monetary Board to cut RRP by 25 bps in the March 19 meeting following the US Fed’s surprise 50 bps cut,” Mr. Roces said.

On Tuesday, Reuters reported that the US Federal Reserve cut rates by 50 bps as an emergency move to shield the world’s biggest economy from impact due to the coronavirus outbreak.

After pausing in the later part of 2019, the Monetary Board slashed benchmark rates by another 25 bps on Feb. 6 as a preemptive move to cushion the country from the impact of the coronavirus disease 2019 (COVID-19).

This means the BSP has already unwound 100 bps from the 175 bps worth of rate hikes done in 2018 to quell multi-year high inflation.

BSP Governor Benjamin E. Diokno said earlier this week another 25-bp cut is on the table this year, adding that they will assess anew the impact of the virus on the economy during the Monetary Board’s policy-setting meeting on March 19. Last week, he also said the central bank is not ruling out cuts worth 50 to 75 bps this year and may likewise reduce banks’ reserve requirements further.

The rates on the BSP’s overnight reverse repurchase, overnight lending and deposit facilities stand at 3.75%, 4.25% and 3.25%, respectively.

The RRR of big banks currently stands at 14%, while those for thrift and rural lenders are at four percent and three percent, respectively, after 400 bps worth of cuts in 2019.

Mr. Diokno has vowed to reduce RRR of big banks to the single digit level by the end of his term in mid-2023.

BSP data showed net claims on the central government climbed by more than a third (31.9%) in January, faster than the downwardly revised 23.8% logged in December.

For domestic claims, which were supported mainly by claims on the private sector, growth was at a pace of 11.7%, also quicker than the upward revised 10.6% seen in December.

“Loans for production activities continued to be driven by lending to key sectors such as real estate activities; financial and insurance activities; electricity, gas, steam and airconditioning supply; information and communication; and construction,” the central bank said.

Data from the central bank also showed net foreign assets (NFAs) in peso terms inched up by 8.7% in January, easing from the upwardly revised 8.9% in the preceding month.

On the other hand, NFAs held by banks also grew by 77%, much quicker than the upwardly revised 23.3% seen in December.

“The sustained expansion in banks’ foreign assets can be attributed to the recent strength of the peso,” UnionBank’s Mr. Asuncion said.

“Historically, December and even January, personal remittance inflows are at its height greatly affecting the local currency,” he added.

Meanwhile, bank lending growth also picked up for the third consecutive month in January.

BSP data showed outstanding loans disbursed by universal and commercial banks rose by 11.6% in January, picking up from the 10.9% pace seen in the previous month.

Inclusive of reverse repurchase agreements, bank lending grew by 11.2%, quicker than the downwardly revised 10.8% recorded in December.

Lending growth was mainly supported by production loans, which comprised 86.3% of total loans. Lending to this segment grew 8.8% in January, easing from the 9.1% growth in December.

Growth in production loans came mainly on the back of growth in lending to sectors such as real estate activities (20.5%); information and communication (18.6%); financial and insurance activities (16.2%); construction (15.5%), and electricity, gas, steam and air-conditioning supply (8.2%).

“Bank lending to other sectors also increased during the month, except those to manufacturing (-2.9%), mining and quarrying (-11.6%), and other community, social and personal activities (-34.8 %), the BSP said.

Likewise, BSP data showed loans for household consumption grew 40.1% in January from 27.5% the prior month, supported by faster growth in credit card and motor vehicle loans during the month.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the faster loan growth in January could be on the back of higher government spending.

“Faster loan growth may already reflect the sharp increase in government spending especially in infrastructure, thereby increasing the business and the required financing activities of various suppliers involved, which also have positive effects to other businesses on the broader local economy,” Mr. Ricafort said in an e-mail.

Data from the Bureau of the Treasury showed the government’s budget deficit widened to a record P660.2 billion in 2019, with government spending hitting nearly P500 billion in December alone to support its infrastructure and social protection programs, among others.

Government expenditures in 2019 hit P3.797 trillion, growing by 11.42% year on year and surpassing the 10% rise in revenues to P3.137 billion.

Meanwhile, ING Bank NV-Manila Senior Economist Nicholas Antonio T. Mapa pointed out the sharp pickup in loans disbursed for consumption.

“Going forward, Mr. De la Cruz (Filipinos) will continue to help shore up lost capital formation momentum and in return play a part in 2020’s recovery, coronavirus notwithstanding,” Mr. Mapa said in a note sent to reporters.

“Falling capital formation was one of the main culprits to the 2019 GDP (gross domestic product) growth disappointment and the steady improvement in bank lending and stable liquidity conditions points to better economic performance for the year, ahead of the COVID impact,” he said.

RCBC’s Mr. Ricafort said central banks have been opting to reduce rates amid the possible slowdown that could be caused by the virus, which could in turn cause a rise in borrowings. — L.W.T. Noble