Money supply picks up in November even as loan growth eases

MORE MONEY circulated in the economy in November last year, even as loan growth continued to ease in the wake of a fifth increase in benchmark interest rates by the Bangko Sentral ng Pilipinas (BSP) that month. Domestic liquidity or M3 — the broadest measure of money in an economy — increased by 8.4% that month, slightly up from 8.3% in October. This translates to P11.251 trillion, according to latest data the central bank released on Tuesday. Month-on-month, liquidity edged up by 0.5%. Strong credit demand fueled the sustained increase in liquidity at the fastest pace in two months. Domestic claims saw a softer rise of 14.6% in November, versus the preceding month’s 15.2% increase. Meanwhile, net claims on the national government went up by a faster 12.1% compared to October’s 11.2%. Net foreign assets in peso terms contracted anew in November, with a 3.2% year-on-year decline compared a five percent reduction previously. Foreign assets maintained by the BSP grew in November as dollar reserves increased at a time of a stronger peso. However, those held by banks posted a slower increase due to a softer pickup in loans and investments in debt papers, the central bank added. Easing liquidity growth came after the BSP fired off a 25 basis point (bp) increase in policy rates at its Nov. 15 meeting, which followed back-to-back rate increases worth 50 bp each in August and September to rein in inflation expectations as consumer prices rose the fastest in nearly a decade. Some market players have said that money supply had been “tight” late last year, as global and local yields have been on the rise. Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, said the latest liquidity data boost chances of a cut in banks’ required reserves.

“In line with this development and given that inflation slowed in December 2018 and is now forecasted to slide back within target as early as 1Q 2019, the probability that the BSP unloads its much-anticipated 2019 reserve requirement ratio cut by 1Q has increased…” Mr. Mapa said, referring to BSP Governor Nestor A. Espenilla, Jr.’s plan to eventually bring minimum reserves down to single-digit levels from 18% currently. A one percentage point cut in bank reserves unlocks roughly P100 billion in cash which banks can deploy for loans and investments.

LOAN GROWTH SOFTENS

Credit extended by banks increased by the slowest rate in over two years given slowdown in both business and consumer segments, the central bank said. Outstanding loans grew by 16.8% in November, slipping from October’s 18.1% climb and marking the mildest hike since April 2016. Month on month, loans rose by 0.3%. Computed to include reverse repurchase agreements, bank lending growth eased to 15.4% from 17.9%. Loans for production continued to account for the bulk of credit, up 17.2% in November from 18.7% the preceding month. Loans for construction posted the biggest rise at 38.1%, followed by financial and insurance activities (29.4%); wholesale and retail trade, repair of motor vehicles and motorcycles (19.7%); manufacturing (16%); and real estate (12.5%), among other sectors, the BSP reported. Consumer loan growth decelerated to 13.8% from October’s 14.6%. —