Money supply expands at fastest pace in 6 years

Money supply expanded at its fastest pace in nearly six years last month, helping push bank loans up and drive economic growth, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Domestic liquidity – known as M3 – hit P5.345 trillion in May, up 16.3 percent year-on-year, the fastest growth since July 2007 when it rose 19.2 percent, preliminary data showed.

“The continued expansion in domestic liquidity during the month indicates sufficient liquidity to sustain the economy’s growth momentum,” BSP 1overnor Amando Tetangco Jr. said in a statement.

The BSP has been boosting money supply in the financial system as it maintained policy rates at historic lows of 3.5 percent and 5.5 percent since October last year to encourage more lending.

In addition, it has slashed the interest it offers on special deposit accounts – banks’ and trust departments’ deposits with the BSP – by 150 basis points to two percent from the original 3.5 percent.

The goal was to push out funds, totaling P1.817 trillion as of June 7, to the real economy, to add more liquidity that would finance more projects such as infrastructure. This, in turn, would support growth.

The double-digit expansion in M3 helped boost bank credit last month, Tetangco said.

For the first five months, loans from universal and commercial banks grew 13.1 percent to P3.262 trillion. The expansion rate was a recovery from a 27-month low of 12 percent last April.

Including money lent to BSP, credit expanded at the same pace, although the amount was at a higher P3.523 trillion.

“The continued brisk growth in bank lending suggests adequate funding for domestic economic activity in the months ahead,” the central bank chief said.

Broken down, production loans reached P2.971 trillion, while consumer loans used for household needs totaled P263.24 billion. The two segments grew 13.3 percent and 11.7 percent, respectively.

Lending to the following sectors expanded the most during the fivemonth period: real estate, renting and business services (24.3 percent), electricity, gas and water ( 14.8 percent), wholesale and retail trade ( 13 percent) and manufacturing (5.2 percent).

Declines, on the other hand, were recorded on lending to agriculture, hunting and forestry, down 6.5 percent, and fishing, which decreased 3.6 percent, data showed.

“Going forward, the BSP will continue to monitor the domestic financial environment to ensure that liquidity and credit conditions remain supportive of the expanding domestic economy while remaining consistent with the price stability objective,” Tetangco said.