MONEY SUPPLY growth logged a quicker pace in April for the second consecutive month, reflecting the impact of the central bank’s easing to lessen the economic impact of the coronavirus crisis.

Domestic liquidity or M3, the broadest measure of money supply in an economy, increased by 16.2% year on year to P13.6 trillion in April, quicker than the 13.3% growth seen in March, data from the Bangko Sentral ng Pilipinas (BSP) showed. Month on month, M3 grew 3.7%.

The central bank said demand for credit mainly fueled money supply growth.

Net claims on the central government grew 45.5%, quicker than the 21.6% logged in March. The BSP attributed this to the increased borrowings by the national government.

Meanwhile, domestic claims also expanded by 15%, faster than the 11.9% seen in March.

Net foreign assets in peso terms likewise rose 11.9%, picking up from the 9.1% pace the previous month.

Ateneo de Manila University economist Alvin P. Ang said in a text message that the faster growth in domestic liquidity came after a reduction in the reserve requirement ratio of banks.

The reserve requirement ratio (RRR) of universal and commercial banks was slashed by 200 basis points (bps) to 12% in early April in a bid to boost liquidity during the lockdown. The Monetary Board authorized cuts of up to 400 bps in the RRR of banks for this year.

On the other hand, bank lending expanded by a slower pace amid a slump in economic activity during the lockdown.

Outstanding loans disbursed by universal and commercial banks grew 12.7% in April, easing from the upward-revised 13.6% in March, the BSP said in a separate statement on Monday.

Inclusive of reverse repurchase agreements, bank lending rose by 10.9% in April, also slower than the 14% seen the previous month.

“The deceleration reflects in part constrained economic activity following the Luzon-wide lockdown to contain COVID-19 (coronavirus disease 2019) outbreak,” the BSP said.

Production loans, which made up 87% of total credit in April, was seen as the main driver of expansion even as growth slowed to 11.1% from revised 11.6% in March.

The sustained increase in production loans was driven primarily by credit for real estate activities (20.8%); financial and insurance activities (13.9%); electricity, gas, steam and air-conditioning supply (11.2%); information and communication (29.4%); and transportation and storage (20.8%).

Bank lending to other sectors also increased in April, except for mining and quarrying (-5.3%), professional, scientific, and technical services (-18.4%), and manufacturing (-1.3%).

Meanwhile, the growth of loans for household consumption slowed to 33.3% in April from the upward-revised 36.5% seen in March as credit card, motor vehicle and salary-based consumption loans expanded slower.

“Domestic liquidity conditions have stabilized with the implementation of various liquidity-enhancing measures by the BSP. Moreover, the BSP’s various regulatory relief measures should help reinforce banks’ capacity for sustained lending, especially to affected households and businesses. The BSP expects credit activity to pick up in the coming months, as economic activity resumes with the gradual reopening of the economy,” the central bank said.

The BSP added that stable liquidity conditions have provided it space to “slowly rescale its monetary operations in the coming weeks, as the economy begins to transition towards new normal conditions.”

“This will help the BSP’s liquidity measures gain further traction by providing better guidance to short-term market interest rates,” it said.

“Going forward, the BSP will remain vigilant in monitoring liquidity and credit dynamics amid significant disruptions to economic activity. The BSP reassures the public of its commitment to deploy its full range of instruments to ensure that domestic liquidity and credit remain adequate amid the ongoing coronavirus pandemic.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the slower loan growth could be due to muted business activities amid the lockdown.

“Some companies reduced capital expenditures in response to the sharp reduction in economic activities at the height of the lockdown in April, thereby reflecting the slower growth in demand for loans for the month,” he said in an e-mail.

Mr. Ricafort said he expects loan growth to have picked up in May as the economy gradually reopened last month. — L.W.T. Noble