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||12 October 2009
Philippines: Strong remittances boost August money supply
Philippines’ domestic liquidity continued to post double-digit growth in August due to strong remittances from overseas Filipinos, GMA news reported on its website, quoting an official of the Bangko Sentral ng Pilipinas (BSP), the central bank,
BSP officer-in-charge Nestor Espenilla Jr said over the weekend that domestic liquidity or M3 jumped by 13.4 percent to P3.608 trillion in August from P3.183 trillion in the same month last year.
Espenilla said the growth in the demand for money in August was higher than the 12.9 percent annual growth recorded in July.
M3 is the amount of money circulating in the domestic economy. At a time when the economy is booming and money supply is expanding rapidly, the central bank would normally step in to mop-up in order to ensure that inflation would not surge.
Espenilla noted that the continued growth in domestic liquidity partly associated with inflows from overseas remittances would remain supportive of the domestic economic recovery.
The BSP has raised its growth forecast in the amount of money sent home by Filipinos abroad to three percent instead of zero from a record $16.4 billion last year.
Data from the central bank showed that the amount sent home by Filipinos abroad inched up by 3.8 percent to $10 billion in the first seven months of the year from in the same period last year.
Liquidity growth is one of the important vehicles considered in determining the central bank’s monetary policy. The BSP’s Monetary Board has kept its key policy rates steady at record lows after reducing overnight borrowing and lending rates by 200 basis points since December last year.
The overnight borrowing rate is currently pegged at 4.0 percent and the overnight lending rate is at 6.0 percent.
BSP data showed that the expansion in net foreign assets continued to drive the growth of liquidity with an expansion of 29.9 percent in August from 21.7 percent in July.
“This can be traced to the significant increase in the NFA position of the BSP and other depository corporations at 20.7 percent and 104.9 percent, respectively. NFA rose as the BSP continued to build up its international reserves while banks reduced their foreign liabilities," the BSP said.
However, net domestic asset contracted by 2.8 percent in August due to the slower growth in net domestic credit and the continued increase n the negative balance of the net other items account during the month.
Espenilla said credit extended to the public sector remained strong with a 21.8 percent growth while the growth in credit extended to the private sector slowed down to 6.2 percent.
“This was due partly to the continued contraction in the manufacturing and construction loans given the still weak export market and ongoing corrections in the property sector," he explained.
The central bank had projected that M3 should expand by as much as 14 percent this year in order to prevent inflation pressures from building up and triggering a clamor for wage adjustments.
The amount of money supply in the system is carefully calibrated by the BSP since it has a direct impact on inflation rate. With the slackening economy, the BSP wanted to release more liquidity into the system to encourage people to spend and boost the country’s ailing domestic output.
The country’s GDP growth slackened to 1.0 percent in the first half of the year from 4.0 percent in the same period last year due to the full impact of the global economic meltdown. Economic managers see the GDP expansion slowing down to a range of 0.8 percent to 1.8 percent this year from 3.8 percent last year.
According to Espenilla, the BSP would keep a close watch over developments in the domestic liquidity to ensure sustained funding for growth requirements to the extent that the inflation outlook will allow.
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