Feb. M3 growth slowest in 6 years at 7.1%

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MONEY supply growth eased further in February to post its slowest level in over six years, in line with softer growth in bank loans, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

Domestic liquidity or M3, which is the broadest measure of money supply, grew 7.1%% year-on-year to P11.497 trillion. This was lower than the upwardly-revised 7.7% growth recorded in January, and the weakest since September 2012.

Money supply rose 0.7% month-on-month.

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

Net claims on the central government accelerated in February, posting a 8.3% rise against the 5.3% increase the previous month. However, domestic claims grew 11.7%, easing from January’s revised 12.4%, but still supported by strong borrowing by the private sector.

Meanwhile, net foreign assets (NFA) expressed in pesos declined 1.5% year-on-year after posting a 1.2% decline in January. NFAs of banks fell further even as foreign assets grew as a result of higher loans and investment in debt papers.

On the other hand, the central bank’s NFA position continued to expand for the month driven by foreign exchange inflows mainly from overseas Filipinos’ remittances, business process outsourcing receipts as well as foreign portfolio investments.

BSP officials voted to keep benchmark rates steady at the 4.25-5.25% range during their March 21 policy meeting, pointing out the need to be cautious even as with inflation steadily dropping.

The market is expecting a reduction in the 18% reserve requirement ratio (RRR), with a one percentage point cut expected to release around P90-100 billion into the economy.

Bank lending growth also slowed for a fourth straight month, dragged down by softer demand from corporate borrowers.

Outstanding loans rose 13.7% year-on-year in February, easing from the 15.3% pace in January. However, they declined 0.17% month-on-month.

Factoring in reverse repurchase agreements, bank lending growth also softened to 13.9% from 14.5%.

Production loans, accounting for the bulk of credit at 88.4%, grew at a slower pace of 13.6% in February from 15.5% previously.

Construction loans continued to see the biggest rise at 44.4%, followed by financial and insurance activities (22.2%); wholesale and retail trade, repair of motor vehicles and motorcycles (14.6%); and manufacturing (13.7%).

All other industries also received increased credit lines during the period, the BSP said, except professional, scientific and technical activities which slipped by 25.2%, as well as in other community, social and personal activities, declining 5.1%.

The slower pace of corporate borrowing was somehow tempered by the growth in household credit which accelerated by 14.9% from the upward-revised 13.2% in January.

This was due to a sustained growth in automobile loans as well as expansion of salary-based consumption loans and other types of credit.

“The BSP will continue to ensure that the expansion in domestic credit and liquidity proceeds in line with overall economic growth while remaining consistent with the BSP’s price and financial stability objectives,” the statement from the central bank read.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said that money supply growth and bank lending continued to decline, with domestic liquidity “grinding to single digit growth for half a year now.”

“Market players have for some time noted some tightening conditions in domestic liquidity, pointing to both the supply (M3) and the demand (short term TD rates) as data to show this assertion,” Mr. Mapa said in an e-mail.

“BSP has vowed to remain data dependent in its dealings and has promised to deliver a RRR reduction for as long as data supports it.” — Karl Angelo N. Vidal