Domestic liquidity jumped by 5.9% year on year to P16.4 trillion in June. — PHILIPPINE STAR/WALTER BOLLOZOS

GROWTH in money supply further eased in June as high borrowing costs weighed on credit demand.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that domestic liquidity, as measured by M3, expanded by 5.9% to P16.4 trillion in June, slower than the 6.6% growth in May.

On a month-on-month seasonally adjusted basis, M3 increased by 0.2%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the June domestic liquidity growth was among the slowest in nearly two years or since July 2021.

He attributed this to the “restrictive monetary policy measures” as the BSP sought to mop up excess liquidity from the financial markets to curb inflation and stabilize the peso.

The Monetary Board raised borrowing costs by 425 basis points (bps) from May 2022 to March 2023, bringing the key interest rate to a near 16-year high of 6.25%.

Based on BSP data, domestic claims jumped by an annual 10.1% in June, slightly slower than 11.4% in May.

Claims on the private sector rose by 7.9% in June, easing from the 9.4% growth a month ago. The growth was driven by continued expansion in bank lending to nonfinancial private corporations and households.

Meanwhile, net claims on the central government rose by 17.2% in June, a tad slower from 18.3% in May, on the sustained borrowings by the National Government.

Net foreign assets (NFA) in peso terms slid by 2.8% in June, reversing the 2.7% expansion in May.

“The BSP’s NFA position declined by 0.6% in June after increasing by 4.2% in the previous month. Meanwhile, the NFA of banks declined on account of higher bills payable,” the central bank said.

The BSP added that it will continue to ensure domestic liquidity conditions are consistent with price and financial stability.

“For the coming months, M3 growth could remain tempered as long as inflationary pressures remain and monetary policy remains restrictive to bring down inflation further to BSP’s targets,” Mr. Ricafort said. 

Headline inflation likely settled within the 4.8%-to-5.6% range in August, according to the BSP.  If realized, this would be higher than the 4.7% print in July. It would also mark the 17th straight month inflation breached the 2-4% target.

The BSP sees inflation returning to the 2-4% target range by the fourth quarter this year. It projects full-year inflation to reach 5.6% in 2023, before easing to 3.2% in 2024.

Earlier BSP data showed outstanding loans of big banks expanded by 7.8% to P10.99 trillion in June from P10.19 trillion a year ago. Bank lending growth in June was slower than 9.4% seen in May and 12.1% in June 2022. — K.B. Ta-asan