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THE
supply of money in the system, also known as domestic
liquidity, surged forward in March and grew by 9.6
percent to P2.93 trillion, the Bangko Sentral ng
Pilipinas (BSP) said on Friday.
This
compares with domestic liquidity growth averaging only
6.6 percent in February and indicative of banks less
willing to entrust excess funds with the central bank.
The mood
shift coincided with the period in which the BSP made
adjustments to the very popular special deposit accounts
(SDAs) that had the banks lose much of their appetite
for the anti-liquidity instruments.
In
mid-March the BSP no longer sold SDAs beyond six months,
forcing the banks to lend what they had to the borrowing
public once again and thus the increase in money-supply
levels.
Funds
that used to stay parked for up to one year in the
vaults of the BSP now slowly found their way back to the
financial system, and this explains the uptick in
domestic liquidity growth during the month.
Technically known also as M3, domestic liquidity grew by
7.2 percent in January but slowed to only 6.6 percent
the following month.
BSP
governor Amando M. Tetangco Jr. reported the surging M3
growth against a background of change in the reporting
system observed by banks, in which the consolidated
statement of condition approach or CSOC was replaced by
the new financial reporting package or FRP.
Tetangco
said the expansion in domestic liquidity was driven by
an increase in net foreign assets, especially those of
the BSP even as the banks posted a reduction of their
own NFA holdings.
This
liquidity growth was only tempered by the decline in net
domestic assets for the period, which contracted at a
slower pace of 1.4 percent in March from contraction of
3.3 percent in February.
The
financial system’s net domestic assets fell as the net
other items account, which includes the central bank’s
SDAs and their overnight borrowing instruments,
continued to reflect a large negative balance.
“The
growth of credit extended to the public sector continued
to be strong at 10.3 percent, although slightly lower
than the 11.5 percent reported in the preceding month.
“Likewise, credit extended to the private sector,
registered a slower growth of 2.6 percent from 10.1
percent posted in the previous month,” Tetangco said.
He vowed
to keep a keen eye on M3 growth that at one point in the
recent past grew at a blistering pace of 26 percent.
Unwarranted M3 growth is a perfect recipe for high
inflation. |
