7 July 2020
Domestic Liquidity Continues to Expand in May 2020
Preliminary data show that domestic liquidity (M3) grew by 16.6 percent year-on-year to about ₱13.7 trillion in May. This was faster than the 16.2 percent expansion in April. On a month-on-month seasonally-adjusted basis, M3 increased by 0.6 percent.
Demand for credit remained the principal driver of money supply growth. Domestic claims rose by 16.2 percent in May from 15.0 percent in April due mainly to the sustained growth in credit to the private sector. Loans for production activities continued to be driven by lending to key sectors such as real estate activities; financial and insurance activities; electricity, gas, steam and air conditioning supply; information and communication; and transportation and storage. Meanwhile, loans for household consumption eased due mainly to the slower expansion in credit card and motor vehicle loans during the month, attributed in turn to the impact of the lockdown. Net claims on the central government grew by 59.6 percent in May, faster than the 45.5 percent growth in the previous month, owing to increase in domestic borrowings by the National Government (NG).
Net foreign assets (NFA) in peso terms expanded by 12.1 percent year-on-year in May, faster than the 11.9 percent growth in April. The BSP’s NFA position continued to expand, reflecting the increase in gross international reserves following deposit with the BSP by NG of proceeds of its foreign exchange borrowings. Meanwhile, growth in the NFA of banks eased, as banks’ foreign assets declined mainly on account of lower investments in marketable securities.
The continued stabilization of domestic liquidity conditions has given the BSP some room to gradually rescale its monetary operations while maintaining the accommodative stance of monetary policy. This will help the BSP’s earlier liquidity measures gain further traction by providing better guidance to short-term market interest rates.
Going forward, the BSP will continue to monitor domestic liquidity and credit dynamics as the economy transitions towards new normal conditions. The BSP stands ready to deploy its full range of instruments to ensure that liquidity and credit remain adequate to support domestic demand amid the ongoing health crisis.
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