Philippines: Domestic liquidity up by slower 10.9%

• Apr 28, 2020

MANILA, Philippines — The record retail treasury bond (RTB) issuance by the national government sapped some liquidity in the financial system, resulting in a slower growth in money supply in February, according to the Bangko Sentral ng Pilipinas (BSP).

Preliminary figures released by the BSP showed that domestic liquidity or M3 grew at a slower rate of 10.9 percent in February to P12.8 trillion from the revised 12 percent growth in January.

Domestic claims grew by 10.3 percent in February from 11.7 percent in January due mainly to the sustained growth in credit to the private sector.

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

Meanwhile, the growth in the net claims on the central government slowed to 18.4 percent in February from the revised 31.8 percent growth in January due in part to the increase in deposits by the national government with the BSP.

Michael Ricafort, chief economist at Yuchengco-led Rizal Commercial Banking Corp. (RCBC), said the slower M3 growth in February primarily reflects the reduction of liquidity in the financial system after record RTB issuance.

Ricafort said the fund raising activity by the Bureau of the Treasury (BTr) siphoned off a record P310.8 billion from the financial markets in February.

Ricafort said domestic liquidity may rise in the coming months due to the lowering of the level of deposits banks are required to keep with the BSP as well as the implementation of relief measures to help banks amid the coronavirus disease 2019 or COVID-19 pandemic.

The BSP has lowered the reserve requirement ratio by as much as 400 basis points this year.

Last March 30, the BSP slashed the RRR for big banks by 200 basis points, releasing P200 billion into the financial system to help boost economic activity amid the implementation of the enhanced community quarantine in Luzon.

Ricafort said the BSP also adopted other measures to increase liquidity into the banking system amid the lockdown, in an effort to give banks greater flexibility in servicing the requirements of their depositing and borrowing customers clients.

“Higher liquidity in the economy has been part of the quantitative easing measures of the BSP and other central banks around the world in an effort to further

reduce borrowing costs and encourage both retail and corporate borrowers to take up more loans in able for the latter to better weather lockdowns at the very least and even help stimulate more investments and other economic activities,” he said.

Higher liquidity in the financial system from the RRR cuts helps lower interest rates or borrowing costs.

“This is especially needed when economic conditions are not that favorable just like now due to business losses amid the lockdowns,” he added.

Source: https://www.philstar.com/business/2020/04/28/2010187/domestic-liquidity-slower-109