MONEY SUPPLY in November saw a quicker expansion on the back of the central bank’s easing stance being absorbed by the market.

Domestic liquidity or M3, which is the broadest measure of money supply in an economy, grew 9.8% year on year to P12.4 trillion in November, a faster pace compared to the 8.5% print in October, according to preliminary Bangko Sentral ng Pilipinas (BSP) data released on Wednesday.

Month on month, M3 inched up by 1.7%.

The central bank said credit demand continued to fuel money supply growth.

“The pickup in liquidity reflect the copious amount funds released by BSP’s reductions to its reserve requirement ratio (RRR). With inflation in check and falling below target, this was the perfect time to do so,” ING Bank-NV Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

The central bank slashed banks’ reserve requirements by 400 basis points (bps) in 2019. The RRR of big banks stands at 14%, while that of thrift banks and rural banks are at five percent and four percent, respectively.

BSP Governor Benjamin E. Diokno has vowed to reduce big banks’ RRR to the single-digit level by the end of his term in 2023 to be at par with the regional levels.

BSP data showed net claims on the central government climbed 13.9% year on year in November, quicker than the upward-revised 6.6% print in October.

Meanwhile, domestic claims, which were mainly supported by the private sector, rose 8.3%, a pickup from the 6.7% seen in October.

The central bank has identified key sectors as drivers for production activities including real estate activities; financial and insurance activities; construction; and electricity, gas, steam and air-conditioning supply.

Meanwhile, net foreign assets (NFA) in peso terms saw a faster expansion of 11.5% in November from the 9.6% logged in the preceding month.

“NFA position increased during the month, supported by foreign exchange inflows coming mainly from overseas Filipinos’ remittances and business process outsourcing receipts,” Mr. Diokno said in a statement.

Bank-held NFAs also grew by 18.3% in November, a faster pace from the downward-revised 12.1% in October.

LENDING PICKS UP
Meanwhile, after a slowdown in October, credit growth also picked up in November.

Outstanding loans of universal and commercial banks grew by 10.1% in November. Inclusive of reverse repurchase agreements, bank lending rose 10.2% in November, also quicker compared to the 9.1% seen the previous month.

Production loans continued to comprise the bulk of lenders’ portfolio as it made up 87.2% of the total. Loans for said activities went up 8.1%, picking up from the 7.5% pace in October.

Credit for construction activities saw the fastest rate of expansion at 29.1%, followed by real estate activities (19.3%), financial and insurance activities (15.3%), and electricity, gas, steam, and air-conditioning supply (7.6%).

Loans extended to other sectors also picked up in November, except for those which saw contraction including community, social and personal activities (-35.7%), professional, scientific and technical activities (-16.6%), mining and quarrying (-10.8%), and manufacturing (-2.3%).

Economists said the BSP’s monetary easing was a major factor for the pickup in credit growth.

“The cheaper cost of borrowing money for business and consumer credit expansion is definitely fuelling the upticks in M3 and bank lending,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

The BSP cut key rates by 75 bps in 2019, reducing the yields on the overnight deposit, overnight reverse repurchase, and overnight lending facilities to 3.5%, 4% and 4.5%, respectively.

Security Bank Corp. Chief Economist Robert Dan J. Roces said that the credit growth is indeed an “indication of the forward guidance being provided by the BSP.”

“Monetary policy operates on a lag, and the pre-announced cuts temper speculation and market expectations,” he explained.

Mr. Roces added that the pickup in loan growth is a positive development for the country’s economic expansion.

“Moving forward, the turnaround of credit growth in November bodes well for 2019 fourth quarter GDP (gross domestic product) growth, and if sustained will contribute to the economy hitting the lower end of the government’s six to seven percent GDP growth target,” he said in an e-mail.

Economic growth picked up to 6.1% in the third quarter from the 5.6% and 5.5% pace logged in the first two quarters of the year amid the budget’s delay.

This brought the end-September rate to 5.8% which is still a miss from the government’s minimum target of 6%.

“Passage of more reform measures especially the CITIRA (Corporate Income Tax and Incentives Rationalization Act) Bill would help create greater certainty for prospective investors (local and foreign) and eventually lead to greater demand for loans to finance these additional investments into the country,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The bill, which was already approved in the House of Representatives on September, mandates the decrease of corporate income tax from the current 30% to 20% gradually as it is one of the biggest rates among major Asian economies. — Luz Wendy T. Noble

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