Phils Peso Money Supply up 10.3% to P 4.293 Trillion March 2011

Manila, Philippines - Domestic liquidity posted a double-digit growth rate of 10.3 percent in March from 9.8 percent in February providing ample funds to sustain the country’s stronger-than-expected economic growth last year, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Data showed that the country’s domestic liquidity or M3 amounted to P4.293 trillion as of end-March or P399 billion more than the P3.894 trillion recorded in the same month last year. M3 is the amount of money circulating in the domestic economy.

The BSP said the current level of liquidity is enough to support the country’s domestic output that is expected to grow between seven percent and eight percent this year by the Cabinet-level Development Budget Coordination Committee (DBCC).

“The BSP will continue to closely monitor monetary conditions to ensure that domestic liquidity remains in line with BSP’s price and financial stability objectives,” the central bank said.

The country posted its strongest economic growth in 34 years last year after the gross domestic product (GDP) expanded by 7.6 percent exceeding the revised GDP growth target of five percent to six percent set by the DBCC. Economic managers originally expected the country’s GDP to grow between 2.6 percent and 3.6 percent last year.

Liquidity growth is one of the important vehicles considered in determining the central bank’s monetary policy.

At a time when the economy is booming and money supply is expanding rapidly, the central bank would normally step in to mop-up in order to ensure that inflation would not surge.

As a preemptive move to keep inflation expectations well anchored, the BSP raised interest rates by 50 basis points last March 24 and May 5 due to the continued build up in inflation pressures brought about by escalating prices of oil and food in the world market.

The country’s key policy rates were slashed by 200 basis points between December 2008 and July 2009 to cushion the impact of the global financial crisis on the domestic economy, bringing the overnight lending rate to a record low four percent and the overnight lending rate to 6.0 percent. The rates were left unchanged by the BSP for 20 straight months due to the benign inflation outlook.

The overnight borrowing rate is currently pegged at 4.50 percent while the overnight lending rate is at 6.50 percent.

The BSP said the sustained growth in net foreign assets (NFA) continued to fuel the expansion in domestic liquidity. Total NFA jumped by 18 percent to P2.903 trillion as of end-March from P2.46 trillion in the same month last year.

Data showed that the NFA of BSP surged 39.5 percent to P2.843 trillion due to steady foreign exchange inflows from overseas Filipino workers’ (OFW) remittances, foreign portfolio investments or hot money, and export earnings while the NFA of banks plummeted 85.7 percent to P60.36 billion as their foreign liabilities rose while their foreign assets declined.

“Banks’ foreign liabilities increased due to higher placements and time deposits made by the head offices and other branches of foreign banks in their Philippine branches. Meanwhile, the contraction of banks’ foreign assets was due in part to the decline in loan receivables from foreign banks,” the BSP said.

On the other hand, statistics showed that the growth of net domestic assets (NDA) retreated by 3.5 percent to P2.473 trillion due largely to the faster expansion of the net other items including revaluation, capital, reserve accounts as well as special depository account (SDA) placements of trust entities.

BSP Deputy Governor Diwa Guinigundo earlier told reporters that the country’s domestic liquidity or M3 could grow between 10 percent and 13 percent without stoking up inflation as the GDP is expected to grow seven percent to eight percent while inflation is expected to average three percent to five percent this year.


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