Liquidity growth slows in June

The Bangko Sentral ng Pilipinas (BSP) reported yesterday a slowdown in the growth in money supply last month with the introduction of the interest rate corridor (IRC) framework.

BSP Governor Amando Tetangco Jr. said the country’s money supply (M3) expanded by 12.3 percent to P8.71 trillion in June from P7.75 trillion in the same period last year.

Tetangco said the growth in June was slower than the 13.5 percent expansion recorded last May.

The central bank shifted to the IRC system last June 3 with the adjustment in key policy rates. The implementation of the IRC system was part of key changes in the framework for monetary operations designed to enhance the effectiveness of monetary policy.

The rate for the overnight lending facility was set at 3.5 percent instead of six percent while that of the overnight reverse repurchase rate was set at three percent instead of four percent effective last June 3. The rate for the overnight deposit facility was unchanged at 2.5 percent.

The IRC system calls for the shift to the use of floor and ceiling rates for short- term financing to be determined through the auction of sevenand 28-day deposit maturities initially set at once a week.

The TDF serves as the main tool for absorbing liquidity and promotes the establishment of benchmarks for short-term interest rates.

Starting August, the volume of the term deposits offered through the term deposit facility (TDF) would increase to P70 billion from the current P50 billion of seven-day term deposits and P60 billion.

Tetangco said money supply continues to expand due largely to sustained demand for credit. “The continued expansion of M3 in June indicates that money supply remains adequate to support economic growth,” Tetangco said.

The growth of domestic claims slowed down to 16.9 percent in June from 18.7 percent in May as credits to the private sector slowed marginally relative to the previous month.

Bank lending growth was steady at 17.6 percent in June amid strong demand from corporate and retail borrowers.

Data showed net public sector credit moderated to 25.6 percent in June from 35 percent in May, while net foreign assets (NFA) in peso terms grew11 percent from nine percent.