The country’s funding support in terms of liquidity or money supply grew by 5.7 percent year-on-year to P16.242 trillion in July, driven by domestic claims from the credit growth.

The Bangko Sentral ng Pilipinas (BSP) reported over the weekend that domestic liquidity or M3 expanded more slowly in July compared to 5.9 percent in June.

Meanwhile, big banks’ outstanding loans net of reverse repurchase (RRP) placements in the BSP in July amounted to P10.992 trillion from P10.213 trillion same time last year. This translated to a year-on-year bank lending growth of 7.7 percent which was slower than June’s 7.8 percent. This is also the fourth straight month that credit growth was reported lower than previous.

Based on BSP data, on a month-on-month seasonally-adjusted basis, M3 increased by about 0.2 percent. As for bank loans, its month-on-month seasonally-adjusted number net of RRPs also rose by 0.6 percent, similar in the June report.

According to the BSP, “the growth in bank lending has continued to ease in line with the prevailing tight monetary policy stance of the BSP. Looking ahead, the BSP will continue to ensure that domestic liquidity and credit dynamics remain consistent with its price and financial stability objectives.”

As for M3, it continued to note that it will “ensure that domestic liquidity conditions remain consistent with the prevailing stance of monetary policy.” 

At the moment the BSP has a hawkish policy rate outlook. Last Sept. 21, the BSP’s Monetary Board kept the target RRP rate steady at 6.25 percent during its policy rate meeting but BSP Governor Eli M. Remolona Jr. has signaled that he is open to rate hikes in November and possibly in December as well. 

Tightening policy stance will help BSP control a still elevated inflation of 6.6 percent average as of end-August, way above the government’s target of two percent to four percent. For 2023, the BSP’s latest inflation forecast is 5.8 percent.

Preliminary data on bank lending indicated outstanding loans for production activities increased by 6.2 in July after rising by 6.3 percent in the previous month, due to the continued increase in loans to major sectors, said the BSP. Productivity loans amounted to P9.538 trillion in July.

Consumer loans also grew by 22.6 percent in July from 23.7 percent in June, driven mainly by the increase in credit card and motor vehicle loans. In total, consumer loans increased to P1.146 trillion.

As for money supply which is reported separately from bank lending, the BSP said domestic claims increased 8.9 percent year-on-year from 10.1 percent in the June data.

“Claims on the private sector expanded by 8.2 percent in July from 7.9 percent in June, driven by growth in bank lending to non-financial private corporations and households,” it said.

M3 includes net claims on the central government which the BSP said grew by 12.5 percent in July, slower compared to 17.2 percent in June. “(This is) due mainly to the borrowings by the National Government,” it said.

The M3 reporting also includes net foreign assets (NFA) which in peso terms dropped by 2.6 percent year-on-year in July, a similar decline in June of 2.8 percent.

The BSP has its NFA position as well as banks. The NFA of the central bank decreased by 0.5 percent in July after also contracting by 0.6 percent in the previous month.

The NFA of banks, meanwhile, also declined “due to a contraction in interbank loans receivable and deposits maintained with nonresident banks,” said the BSP.

The BSP in another report said the M3 expansion will continue to support the country’s funding requirement. It projected money supply to increase at a steady pace. 

The BSP also said the downward adjustment in the M3 growth forecasts “reflects the impact of lower domestic demand over the policy horizon, partly offset by the higher domestic liquidity nowcast” in the third quarter 2023.