BANGKO Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said he is not worried about higher inflation arising from “significant” growth in liquidity in recent months.

“We have promptly monitored the growth of M3 and it has in fact increased significantly in recent months,” Mr. Diokno said in an interview with ABS-CBN News Channel Tuesday.

“But, you know, we’re still in the midst of the pandemic… we’re not out of the woods yet… what we see right now does not reflect the true picture,” he added.

M3, the broadest measure of money supply, rose 16.2% to P13.6 trillion, accelerating from 13.3% in March.

“Although this crisis is different from the others, it’s very important that the financial system is not constricted by the lack of liquidity,” Mr. Diokno said.

The BSP in March suspended its term deposit facility, its main tool to mop up excess liquidity, to provide support to the financial system during the lockdown. It started offering a 7-day paper in mid-April while the 14-day issues returned to auction last week. The central bank said it will gradually reopen the facility and expects liquidity to improve.

“We’re confident that there is no threat that the excess liquidity will translate into higher inflation,” Mr. Diokno said.

Inflation in May was at a six month-low of 2.1%, easing further from 2.2% in April and 3.2% a year earlier, reflecting the drop in food and transport prices during the lockdown.

ING Bank-NV Manila Senior Economist Nicholas Antonio T. Mapa said M3 grew due to easing measures implemented by the BSP, including a reduction in the reserve requirement ratio for big banks of 200 basis points, a P300-billion repurchase program with the Bureau of the Treasury, and the temporary closure of the term deposit facility.

“The risk that the economy is ‘overheating’ is likely zero at this point and what the Philippines may need at this stage is every stimulus effort we can muster to save the ailing patient, the Philippine economy, before it crashes head long into a depression,” Mr. Mapa said in an e-mail.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said Mr. Diokno is correct to say that the true picture of the economy is yet to emerge. He warned that the new normal will be different from “what we used to know.”

“I think, once the economy has fully re-opened (if ever that happens), the quicker M3 will clearly manifest and translate to higher inflation. At this point, it will slowly creep up,” he said in a text message. — Luz Wendy T. Noble