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Liquidity growth moderates in February

By Ruben Hortelano

04/09/2008

Liquidity in the financial system or M3 continued to expand in February although at a slower pace than the previous month after foreign fund inflows slowed down due to the impact of the US subprime woes.

The slowdown in M3 growth was also traced to the special deposit account facility of the Bangko Sentral ng Pilipinas, that was revamped later in March.

M3 growth for the month averaged only 6.6 percent from 7.2 percent in January and slower than the 22-percent growth a year ago.

“The slowdown in growth of domestic liquidity can be traced to both the decline in net domestic assets and the slowdown in the growth of net foreign assets,” deputy BSP Gov. and Officer-in-Charge Armando Suratos said in a statement.

Suratos reported net foreign assets grew by only 16.7 percent against 20.3 percent the previous January as a result of the decline in the net foreign assets of other depository corporations.

The net foreign assets of other depository corporations showed a net outflow month-on-month of P20.2 billion in February.

The same also showed a month-on-month outflow of P51.5 billion for the period.

Suratos also reported sustained expansion in private sector credit to 10.1 percent from 7.7 percent the previous month.

“Credit extended to the public sector also rose by 11.6 percent as lending to the national government picked up at 17.6 percent even as lending to local government units and other public entities continued to decline,” he said.

The net domestic assets in February fell for the seventh month in a series as the net other items, which include liquidity-sapping SDAs and repurchase papers of the BSP, posted a negative balance as a result of liquidity management measures implemented in May 2007.

Slower M3 growth, while positive in terms of inflationary impact, potentially means slower growth this year targeted to hit 6.3 percent.

In any case, the BSP vowed to closely monitor domestic liquidity developments to ensure there is enough to attain the growth objective and keep the momentum in the right direction.

At the same time, the BSP vowed to keep a keen eye on the risks to inflation and remain in position to implement appropriate and timely policy responses.