Money supply grows at faster pace in March

Liquidity growth in the financial system accelerated to 13.9 percent in March as corporates and individuals frontloaded their borrowings ahead of the adoption of containment measures to prevent the further spread of the coronavirus, according to the Bangko Sentral ng Pilipinas (BSP).

Data released by the central bank showed domestic liquidity (M3) reached P13.13 trillion in March, P1.54 trillion higher than the P11.58 trillion recorded in March last year.

“Demand for credit remained the principal driver of money supply growth,” the BSP said in a statement.

Domestic claims increased by 11.9 percent in March from 10.3 percent in due mainly to the sustained growth in credit to the private sector.

According to the BSP, loans for production activities continued to be driven by lending to key sectors such as real estate activities; financial and insurance activities; wholesale and retail trade, repair of motor vehicles; electricity, gas, steam and air conditioning supply; and information and communication.

On the other hand, loans for household consumption eased due mainly to the slower growth in credit card and motor vehicle loans during the month.

The central bank added net claims on the central government grew by 21.6 percent in March, faster than the 18.4 percent rise in February, reflecting the increased borrowings by the national government aimed at cushioning the impact of the economic fallout from the coronavirus disease 2019 or COVID-19 pandemic.

“Following the implementation of community quarantine protocols in March, the BSP deployed various measures to shore up domestic liquidity and support credit activity,” it said.

The central bank’s Monetary Board slashed interest rates by 125 basis points so far this year and lowered the reserve requirement ratio by 200 basis points last March 30 to free up P200 billion into the financial system to cushion the impact of the health crisis.

It also entered into a P300 billion repurchase agreement with the Bureau of the Treasury and continues to purchase government securities in the secondary market to boost liquidity and confidence in the market.

Michael Ricafort, chief economist at Yuchengco-led Rizal Commercial Banking Corp., said credit growth picked up in March as some businesses frontloaded borrowings as a matter of prudence prior to the imposition of the enhanced community quarantine in Luzon last March 16.

Ricafort said money supply picked up in March amid various monetary easing measures by the BSP since the early days of the lockdown alongside with regulatory relief measures extended to banks to encourage them to lend more to micro, small and medium enterprises (MSMEs) battered by the containment measures imposed by the government.

Ricafort sees faster domestic liquidity growth as the RRR cut took effect last March 30 while additional liquidity enhancing measures were adopted by the BSP in April.

Ricafort added that larger amount of matured government securities could also accelerate the rise in money supply for the month of April.