MONEY SUPPLY growth in March accelerated following the central bank’s monetary easing to help mitigate the impact of the coronavirus pandemic on the economy and the financial system..

Domestic liquidity or M3, the broadest measure of money supply in an economy, expanded by 13.3% year-on-year to P13.1 trillion in March, faster than the 10.9% pace logged in February, according to preliminary data from the Bangko Sentral ng Pilipinas (BSP) released on Friday. Month-on-month, M3 rose 2.4%.

“Demand for credit remained the principal driver of money supply growth,” BSP Governor Benjamin E. Diokno said in a statement.

Net claims on the central government rose 21.6%, quicker than the 18.4% in February. The faster growth reflects borrowings of the national government, the BSP said.

Domestic claims also climbed 11.9% after the 10.3% pace in the previous month, with growth mainly backed by credit to the private sector.

Credit disbursed for production activities were driven by industries including real estate; financial and insurance activities; wholesale and retail trade, repair of motor vehicles; electricity, gas, steam and air conditioning supply; and information and communication.

“Meanwhile, loans for household consumption eased due mainly to the slower growth in credit card and motor vehicle loans during the month,” the central bank said.

On the other hand, net foreign assets (NFA) went up 9.1%, slightly slower than the 9.6% expansion in February.

In March, NFAs were boosted by the increase in dollar reserves as well as the growth in foreign assets of banks due to higher interbank loans and deposits with other banks.

“The BSP will continue to monitor domestic liquidity and credit dynamics in order to provide support amid significant disruptions to economic activity,” Mr. Diokno said.

“Definitely, the COVID-19 (coronavirus disease 2019) pandemic was the culprit for foreign assets growth slowdown. [It] has greatly contributed to general outflows in the financial investment system,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an email.

“The easing slant of the BSP has definitely caught on. Note that since 2019, the central bank has been cutting rates and was trying to prop up economic activity after inflation shot up in 2018,” Mr. Asuncion added.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said the BSP’s moves to support the economy at the onset of the lockdown in March also boosted liquidity.

In 2019, the BSP reduced policy rates by a total of 75 basis points (bp) while big banks’ reserve requirement ratio (RRR) was lowered by 400 bps.

For this year, the BSP has already cut rates by 125 bps in a bid to stem the impact of the pandemic on the economy.

The overnight reverse repurchase rate is currently at 2.75%, while overnight lending and deposit rates are at 3.25% and 2.25%, respectively.

The RRR of big banks was also reduced by another 200 bps in April to stand at 12%. Mr. Diokno has been authorized by the Monetary Board to cut RRR by a total of 400 bps this year.

“For the coming months, any further cut on banks’ RRR would lead to greater amount of liquidity infused into the local banking system,” Mr. Ricafort said.

UnionBank’s Mr. Asuncion said the BSP will likely factor in March money supply data for further decisions that could affect liquidity conditions.

“Too much liquidity in the financial market can cause upward pressures on price level in the economy,” he said. — L.W.T. Noble