A man arranges his peso bills inside a currency exchange shop Friday, Nov. 9, 2007, in Manila, Philippines. The dollar closed Friday at 42.795 pesos, where the peso rose to a new seven-year high on prospects of further U.S. interest rate cuts and likely increases in remittances from Filipinos overseas. (AP Photo/Pat Roque)
MANILA (Mabuhay) – Money streaming within the financial system remained strong in September, driven by a very active bank lending while the impact of adjustments in the central bank special deposit window continued to pump money into the economy, Bangko Sentral ng Pilipinas said Thursday.
The latest report reflects new international reporting standards, and the central bank is still updating data prior to December 2002.
Despite this multi-year high in money supply expansion, inflation is staying on the tepid side in a highly liquid financial market that is deemed a temporary phenomenon.
In a statement, the central bank said domestic liquidity as measured by M3 grew at an annualized 31.0 percent to P6.2 trillion in September.
M3 – the broadest measure of money – includes currencies in circulation, bank deposits, and money market funds among other highly liquid assets.
The September liquidity figure is the same as the revised 31.0 percent in August, the fastest on record since December 2002, according to a staff of the central bank’s Department of Economic Research.
“Money supply growth was driven largely by the sustained expansion in domestic claims, or credits to the domestic economy…. in line with faster growth in bank lending,” the statement read.
Commercial bank loans
In a separate statement, the central bank reported loans extended by commercial banks grew by 15.8 percent in September from the 14.2 percent recorded in August.
Including placements with the central bank, lending growth quickened to 14.6 percent from 13.0 percent.
The bulk, or more than four-fifths of banks’ total loan portfolio, comprised of lending for production activities, which expanded by 14.6 percent in September from 13.1 percent in August.
Growth in consumer loans further eased to 10.9 percent from 11.5 percent, as declines were recorded in credit card, automotive loans and lending for housing purposes.
Emilio Neri Jr., economist at listed Bank of the Philippine Islands, said money and credit are still growing at a healthy pace.
“There’s no possible overheating, yet. But credit growth will be looked at closely by monetary authorities in the coming months, as it is more indicative of inflation and asset price bubbles,” he said in a telephone interview Thursday.
The SDA effect
Limits imposed by the central bank earlier this year to placements in special deposit account (SDA) – a tool to mop up excess liquidity – also contributed to higher M3 growth.
The policy-making Monetary Board slashed the rate on SDAs three times earlier this year to 2 percent, and told bankers to gradually unwind investment management activities (IMA), a type of account in banks’ trust arms, from the facility starting July in line with a total ban in 2014.
The moves were made to flush funds into more productive uses for the economy.
“M3 growth rates are expected to decline once these adjustments are completed,” the central bank noted in the statement on liquidity.
Non-inflationary
Both Neri and the central bank share the view that robust money supply will not give inflation a significant stoking.
A growing money supply drives economic expansion, but too fast an increase fans inflation.
“[T]he temporary period of strong M3 growth is not expected to lead to inflationary pressures,” the central bank said.
“We generally agree with the BSP that the multi-year high growth in M3 will not translate to too high an inflation,” Neri said, citing below-target inflation rates in months past.
Inflation averaged at 2.8 percent in the nine months to September, below the central bank target of 3 to 5 percent for the year. (MNS)