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NEWS UPDATES Asean Affairs                      15  August 2011

Excess liquidity in Philippines rises

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Excess liquidity mopped up by the Philippine central bank rose by more than half in the first six months of the year.

Data from the Bangko Sentral ng Pilipinas showed that financial institutions’ placements in its special deposit account facility grew by 66.4 percent to reach P1.4 trillion at end-June compared with P834.4 billion in the same period last year.

The SDA is one of the tools that monetary officials use in siphoning off excess liquidity in the financial system.

During the global financial crisis, the BSP decided to change the rules governing its SDA, allowing trust departments of banks and non-bank government-owned and controlled corporations to use this facility.

The SDA offers interest rates higher than yields on government securities of the same tenors.

With measures such as the SDA, the central bank aims to bring down the growth in domestic liquidity to below 20 percent.

The four percent rate had been enticing banks to place their money in the vaults of the BSP through the SDA instead of lending it out for other purposes.

Bank placements under the BSP’s reverse repurchase window reached P295.2 billion, an increase of 42.7 percent from last year.

The closely watched domestic liquidity or M3 widened by 11.4 percent in June from the eight percent expansion in the previous month.

On a monthly, seasonally-adjusted basis, M3 widened by three percent from the one percent growth previously.

Alongside the acceleration in money supply was the continued expansion in bank lending, which grew at a faster 19 percent in June compared with 17.4 percent the previous month.

Last June’s growth was the fastest since April 2009.

Likewise, outstanding loans of commercial banks inclusive of RRPs accelerated at a faster rate of 20.5 percent from an expansion of 19.3 percent in May.

On a month-on-month, seasonally-adjusted basis, however, commercial banks’ lending in June declined by 2.4 percent for loans net of RRPs and by 0.5 percent for loans inclusive of RRPs.

BSP Gov. Amando Tetangco Jr. said the sustained expansion in domestic liquidity and bank lending supported the view that financial conditions were stable and that the domestic economy was growing within a sustainable economic path.

Going forward, the BSP would continue to ensure that liquidity and credit conditions keep at pace with overall economic activity while remaining consistent with the BSP’s price stability objective, he said.

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