Money supply expands 9.1% in April

The amount of money circulating in the economy expanded at a faster pace of 9.1 percent in April from 5.6 percent in March on the back of the easing of the country’s monetary policy, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

In a statement, BSP Governor Amando Tetangco Jr. said domestic liquidity or M3 reached P4.58 trillion as of end-April or P380 billion higher than the year-ago level of P4.2 trillion.

“The relatively more rapid domestic liquidity growth during the month reflects in part the impact of recent policy actions of the BSP to help support a non-inflationary economic growth,” he stressed.

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 nor- mally step in to mop-up in order to ensure that inflation would not surge.

The BSP slashed the reserve requirement ratio by 300 basis points to 18 percent from the current level of 21 percent last April 6.

The move released at least P100 billion worth of funds to the financial system.

Last year, the BSP raised the reserve requirement ratio for banks by a combined 200 percentage points, bringing the level to 21 percent from 19 percent to curb additional inflationary pressures arising from excess domestic liquidity.

On the other hand, the BSP has so far slashed interest rates by 50 basis points on the back of benign inflation outlook and fragile global economic growth, bringing the overnight borrowing rate back to a record low of four percent and the overnight lending rate at six percent.

The central bank reduced interest rates by 25 basis points last Jan. 19 and by another 25 basis points last March 1 but decided to keep policy rates steady last April 19.

The next policy setting meeting of the BSP’s Monetary Board is scheduled on June 14.

Data released by the BSP showed that the net foreign assets (NFA) grew at a slower pace of 9.3 percent to P3.218 trillion in end-April from P2.943 trillion as foreign assets of the BSP increased by 10.3 percent to P3.213 trillion from P2.914 trillion due largely to sustained foreign exchange inflows from overseas Filipino remittances and foreign portfolio investments or “hot money.”

On the other hand, the NFA of banks plunged by 84.6 percent to P4.5 billion from P29.22 billion due to the sustained rise in foreign liabilities combined with a decline in foreign assets.