MONEY SUPPLY growth quickened slightly in July even as demand for credit weakened, the Bangko Sentral ng Pilipinas (BSP) reported on Tuesday.

Domestic liquidity or M3, the broadest measure of money supply in an economy, grew 6.7% year-on-year to P11.9 trillion, picking up from the 6.4% rise in June, latest BSP data showed.

Month-on-month, money supply increased 0.8%.

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

Net claims on the central government contracted by 1.8% year-on-year, an improvement compared to the 3.9% year-on-year contraction in June. Meanwhile, domestic claims, which were mainly supported by the sustained growth in credit to the private sector, grew 5.7% in July, easing from 6.2% in June.

The central bank said 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; construction; and wholesale and retail trade and repair of motor vehicles and motorcycles.

Meanwhile, net foreign assets (NFA) in peso terms climbed 5.8% year-on-year in July, faster than the 5.3% logged in June.

“The BSP’s NFA position expanded during the month, driven by foreign exchange inflows coming mainly from overseas Filipinos’ remittances, business process outsourcing receipts, and foreign portfolio investments,” the central bank said explained.

On the other hand, the NFA of banks dropped as their foreign liabilities grew due to higher placements and deposits made by offshore banks with their local branches and other lenders.

“This increase in liquidity can be attributed to the recent monetary policy cuts. These cuts are meant to encourage economic activity that influences the rise of money supply,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

The central bank has cut benchmark interest rates by a total of 50 basis points (bp) so far this year — by 25 bps each on May 9 and Aug. 8 — to 4.25% for the overnight reverse repurchase rate, 4.75% for overnight lending and 3.75% for overnight deposit, partially dialing back the 175-bp cumulative hikes triggered last year by successive multi-year high inflation that peaked at a nine-year high.

Meanwhile, banks’ reserve requirement ratios (RRR) now stand at 16% for big banks and six percent for thrift banks after the phased 200-bp cut implemented after an off-cycle meeting last May. The RRR of rural and cooperative lenders was also cut to four percent from five percent effective May 31.

Reductions to lenders’ reserve ratios were estimated to have released some P200 billion of liquidity into the system.

BSP Governor Benjamin E. Diokno has hinted on further cuts to benchmark rates and big banks’ RRR within the year.

Meanwhile, bank lending picked up in July due to faster growth in credit to households, the BSP reported separately on Tuesday.

Outstanding loans of universal and commercial banks expanded 11.1% year-on-year in July, faster than the 10.5% growth in June. Inclusive of reverse repurchase agreements, bank lending growth rose 10.7% in July from 10.3% the previous month.

Production loans made up bulk of total credit, cornering a 87.6% share as the total grew 9.8% in July, steady from the previous month.

Construction loans continued to log the highest increase at 38.2%, followed by financial and insurance activities at 19.1%; real estate activities at 18.1%; electricity, gas, steam and airconditioning supply at 13.8%; and wholesale and retail trade, repair of motor vehicles and motorcycles at 4.5%, the central bank said.

Lending to other sectors also increased in July except those in other community, social and personal activities which dropped 41.3%, and professional, scientific and technical activities, which declined 36%.

Meanwhile, loans for household consumption grew 23% in July, faster than the 15.3% pace booked in June, on the back of an expansion in motor vehicle and salary-based general purpose loans.

“Going forward, the BSP will continue to ensure that the expansion in domestic credit and liquidity remains consistent with the BSP’s price and financial stability objectives,” the central bank said. — L.W.T. Noble