Money readily avavilable to you and I, known among central bankers as domestic liquidity or M3, posted only moderate growth rates in September this year on both annual and month-one-month basis, the Bangko Sentral ng Pilipinas said on Wednesday.

Bank lending in the same period also posted moderate growth rates on either annual or month-on-month basis.

These aggregates are likewise some of the best indicators proving that money supply is at a level supportive of continued economic expansion and not a source of system friction best indicated by inflation.

Excess liquidity manifests itself in the form of inflation as too much money chases after too few services and goods, pushing commodities prices higher.

But according to the BSP, M3 growth in September grew at an annual clip of just 9.7 percent to P11.157 trillion. Month-on-month, liquidity growth barely expanded at a seasonally-adjusted rate of just 0.1 percent.

“Preliminary data show that domestic liquidity (M3) grew by 9.7 percent year-on-year to about P11.2 trillion in September 2018, slower than the 10.4-percent expansion in the previous month. On a month-on-month seasonally-adjusted basis, M3 increased by 0.1 percent,” the BSP said.

“Domestic claims grew by 14.5 percent in September, lower than the 15.0-percent increase in the previous month as growth in credit to the private sector eased. Loans for production activities continued to be driven by lending to key sectors such as wholesale and retail trade, repair of motor vehicles and motorcycles; real estate activities; manufacturing; financial and insurance activities; electricity, gas, steam and airconditioning supply and construction.

Meanwhile, the growth in loans for household consumption accelerated owing to the faster expansion in motor vehicle loans, credit card loans, and salary-based general purpose consumption loans. Likewise, net claims on the central government rose at a faster pace of 11.0 percent in September from 8.7 percent in August as a result of increased borrowings by the National Government,” the BSP added.

“Net foreign assets (NFA) in peso terms declined by 0.7 percent year-on-year in September after contracting by 1.3 percent in the previous month. The BSP’s NFA position declined in September relative to a year ago, reflecting the decrease in gross international reserves.
Meanwhile, the NFA of banks expanded due to the growth in banks’ foreign assets resulting from higher loans and investments in marketable debt securities.

“The BSP is of the view that overall liquidity conditions remain supportive of the country’s growth requirements. The BSP will continue to closely monitor domestic liquidity dynamics to ensure that monetary conditions remain conducive to price and financial stability,” the BSP said.

The BSP also reported preliminary data showing outstanding loans of commercial banks, net of reverse repurchase (RRP) placements with the BSP, growing at a lower rate at 17.4 percent in September from 18.9 percent in August.

Likewise, the growth in bank lending inclusive of RRP decelerated to 16.3 percent in September from 18.4 percent in the previous month. On a month-on-month seasonally-adjusted basis, commercial bank loans net of RRPs and loans inclusive of RRPs increased by 0.9 percent and 1.2 percent, respectively.

Loans for production activities — which comprised 88.7 percent of banks’ aggregate loan portfolio, net of RRP — increased at a slower pace at 17.2 percent in September from 19.1 percent in the previous month. The growth in production loans was driven primarily by increased lending to the following sectors: wholesale and retail trade, repair of motor vehicles and motorcycles (22.5 percent); real estate activities (15.8 percent); manufacturing (20.6 percent); financial and insurance activities (31.4 percent); electricity, gas, steam and airconditioning supply (10.6 percent) and, construction (36.4 percent). Bank lending to other sectors also increased during the month except in professional, scientific and technical
activities (-11.0 percent); other community, social and personal activities (-12.0 percent); and, administrative and support services activities (-54.6 percent)
Meanwhile, loans for household consumption grew by 17.9 percent in September from 15.8 percent in the previous month. The faster expansion in motor vehicle loans as well as the growth in credit card loans and salary-based general purpose consumption loans offset the decline in other types of household loans during the month.

The BSP will continue to ensure that the expansion in domestic credit and liquidity proceeds in line with overall economic growth while remaining consistent with the BSP’s price and financial stability objectives.