Money supply to keep growing as economy expands, investments flow – economist

Despite higher interest rates the Bangko Sentral ng Pilipinas’ (BSP) is expected to enforce against inflation, domestic liquidity is expected to grow in double-digit terms this year as the economy will likely stay on track in its growth momentum and attract more investment, an economist said Monday.

 

Domestic liquidity, or money circulating in the financial system, is expected to grow in double-digit rates this year, Security Bank Corp. economist Patrick Ella told GMA News Online. 

 

“We should still see strong growth in liquidity on the back of strong economic growth and higher investment flows,” he said. 

 

“The Philippines is one of the growth areas in Asia, as the second quarter GDP (gross domestic product) shows there’s momentum,” Ella noted.

 

Last Thursday, the Philippine Statistics Authority (PSA) reported the economy expanded by 6.4 percent in the second quarter, matching that of Malaysia as the second fastest in Asia next to China.

 

The Philippines registered foreign direct investments (FDI) inflows of $473 million in May from a net outflow of $62 million a year earlier, latest BSP data show.

 

“Strong liquidity is beneficial to the economy, but it has to grow at a rate that would not be detrimental to the level of price growth,” Ella noted.

 

Bangko Sentral on Friday said money supply in the financial system grew by 18.3 percent to P7.1 trillion in July, but slower than the revised 23.3 percent recorded in June.

 

The July numbers compare with the 15-18 percent growth target of the central bank.

 

The central bank attributed the growth money supply to the demand for credit, as domestic claims rose by 13 percent in July while bank lending continued to grow.

 

The bulk of loans was lent to real estate, renting, and business services, wholesale and retail trade, manufacturing, utilities, and financial intermediation, the central bank noted.

 

Public sector credit decreased by 4.1 percent after an 8.7 percent increase in June as the deposits of the national government with the central bank increased at a faster pace.

 

“The previous adjustments in reserve requirements as well as in the interest rates on the special deposit account (SDA), reverse repurchase, and repurchase facilities are expected to continue to bring domestic liquidity growth in line with the pace of expansion of the real sector,” the BSP said in a statement.

 

Ella said these measures were done to siphon off liquidity to control potential inflationary risks.

 

Bangko Sentral said it is prepared to deploy all necessary measures to ensure that money in circulation stays consistent its goal of keeping prices and the financial system stable.

 

The central bank so far has raised its policy rates by 25 basis points to 3.25 percent from record lows as a preemptive response to signs of inflation pressures.

 

The yield on SDA was hiked by 25 basis points to 2.25 percent while the reserve requirement for thrift, universal and commercial banks were raised by 2 percentage points in the previous meetings. –VS, GMA News

Source: http://www.gmanetwork.com/news/story/377234/economy/moneyandbanking/money-supply-to-keep-growing-as-economy-expands-investments-flow-economist