THE growth of cash circulating in the local economy slowed down in August this year, despite bouts of cuts in the country’s reserve requirement ratio (RRR).
Data from the Bangko Sentral ng Pilipinas (BSP) showed domestic liquidity—broadly measured as M3 —grew 6.4 percent in August this year from its level in the previous year. The growth was slightly faster than the 6.7 percent in July.
The growth led to a total cash supply of P11.9 trillion in the Philippines’s cash stream during the month. A growing cash supply is often beneficial for an expanding economy such as the Philippines, as it provides fuel to the productive sectors of the country.
However, an excessively slow growth in M3 could be detrimental to the country’s overall growth especially if it is not enough to fuel the productive activities in the economy. An excessively high cash supply growth, meanwhile, could stoke inflationary pressures and pull prices upward for the economy.
In its statement on the July domestic liquidity increase, the BSP vowed to continue to monitor domestic liquidity dynamics to ensure that overall monetary conditions remain in line with maintaining price and financial stability.
The BSP said demand for credit remained the principal driver of cash supply growth during the period.
BSP data showed bank lending also eased during the month.
In particular, outstanding loans of universal and commercial banks grew at a slower rate of 10.5 percent in August from 11.1 percent in July.
Loans for production activities—which comprised 87.4 percent of banks’ aggregate loan portfolio—grew by 9 percent in August, slower compared to the pace recorded in the previous month at 9.8 percent.
The growth in production loans was driven primarily by lending to the following sectors: real-estate activities (17.7 percent); financial and insurance activities (16.3 percent); electricity, gas, steam and air-conditioning supply (11.2 percent); construction (39.2 percent); and wholesale and retail trade, repair of motor vehicles and motorcycle (3.7 percent).
According to the Central Bank, lending to other sectors also increased during the month, except to those in sectors of professional, scientific and technical activities—which declined by 38.9 percent—and other community, social and personal activities which was down 35.9 percent.
Meanwhile, loans for household consumption grew by 25.4 percent in August from 23 percent in July, due to faster growth in motor vehicle, credit card and salary-based general purpose consumption loans during the month.
Amid calls from the market, BSP Governor Benjamin Diokno earlier this year decided to cut its RRR down by 200 basis points.
The implementation of the cut will be in three stages: the first 100 basis point cut was effective May 31; another 50 basis point cut in June 28; and the last 50 basis point cut was effective July 26.
Each cut effectively frees up approximately P90 billion of peso liquidity in the local financial system. Diokno made another cut to the local banks’ RRR just last week, by 100 basis points.