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Money supply growth at three-year low

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By Melissa Luz T. Lopez, Senior Reporter

MONEY SUPPLY growth eased to a three-year low in October, reflecting a decline in foreign assets as dollar reserves dropped further during the month, the Bangko Sentral ng Pilipinas (BSP) said.

Domestic liquidity or M3, which is the broadest measure of money in an economy, expanded by 8.2% year-on-year to P11.14 trillion. The growth eased from 9.8% in September, and is the slowest pace logged since January 2015, according to central bank data.

Month-on-month, money supply even slipped by 0.1% coming from the P11.166 trillion level in September.

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

Driving the slowdown is a 5.2% contraction in net foreign assets held in peso terms, bigger than the 0.9% drop in September. The central bank’s foreign assets also slipped from a year ago due to a decrease in gross international reserves, which are currently at a seven-year low of $74.773 billion.

The central bank used the reserves to temper sharp swings in the exchange rate, as the peso continued to trade above the P54 level versus the dollar during the first few weeks of October.

Meanwhile, foreign assets held by banks also saw a slower climb last month due to a slowdown in investments on debt papers.

The slowdown in liquidity growth came after the BSP’s back-to-back rate increases worth 50 basis points (bp) each during their August and September meetings, which were done to rein in inflation expectations as price increases posted nine-year highs.

The central bank followed through with another 25-bp increase in November, which brought the benchmark borrowing rate to 4.75%.

Some market players are saying that liquidity is “tight” in recent weeks, at a time when interest rates are trending higher and with growing capital requirements in the economy.

LENDING GROWTH QUICKENS
Meanwhile, approved bank loans grew faster in October to reach P8.005 trillion.

Bank lending growth picked up to 18.1% last month from a 17.6% pace in September. If reverse repurchase agreements are included, total credit is 17.9% higher compared to 16.5% the previous month.

Bulk of the credit lines were allotted for production activities, which took 88.7% of the total. These loans rose by 18.7% from a year ago, and quickened from the 17.4% increase in September.

The construction sector saw the biggest pickup in loans, which jumped 39.1% from a year ago. Other industries which incurred bigger borrowings include financial and insurance (32%); manufacturing (20%); wholesale and retail trade, repair of motor vehicles and motorcycles (19.9%); real estate activities (15.4%); and electricity, gas, steam and airconditioning supply (11.9%).

On the other hand, consumer loans eased to 14.6% from 18.2% previously, on the back of slower growth in credit card and auto loans as well as a drop in salary-based lending.

“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 central bank said.

Policy makers have noted the recent slowdown in credit growth, but noted that they expect lending to remain upbeat as the economy can still absorb higher interest rates.