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Liquidity growth slows further in March as loan demand drops

liquidity growth slows further in march as loan demand drops 816x445 - Liquidity growth slows further in March as loan demand drops
PH news coins 100518 - Liquidity growth slows further in March as loan demand drops

MONEY SUPPLY growth further eased in March to post the slowest pace in over six years, with demand for loans also slowing following the central bank’s tighter monetary policy, the Bangko Sentral ng Pilipinas (BSP) reported late Tuesday.

Domestic liquidity or M3, considered as the broadest measure of money in an economy, grew 4.2% year-on-year to about P11.4 trillion in March, slower than the 7.1% expansion in February and 7.6% growth in January. This pace is also the slowest recorded since September 2012.

The BSP noted that money supply decreased by 1% compared to the previous month.

“Demand for credit eased but remained the principal driver of money supply growth,” the central bank said in a statement.

Net claims on the central government contracted by 2.2% after posting a 8.3% climb the previous month.

Meanwhile, domestic claims grew at a slower pace of 7.3% in March from 11.7% in February due to sustained growth in credit to the private sector.

On the other hand, net foreign assets (NFA) expressed in the peso terms expanded by 2% year-on-year after posting a decline of 1.5% in February, on the back of strong remittances from overseas Filipino workers and business process outsourcing receipts.

By contrast, the NFA of banks declined as their foreign liabilities increased due to higher placements and deposits made by offshore banks with their local branches and other lenders.

Amid a decline in domestic liquidity, analysts from First Metro Investment Corp. and the University of Asia & the Pacific said in the latest issue of The Market Call that they expect the central bank to cut big banks’ reserve ratio requirement (RRR) this quarter.

“With M3 growth expected to average 7.1% in the first four months of 2019, the case for a cut in reserve requirements becomes even more compelling,” the report read.

BSP Governor Benjamin E. Diokno earlier signaled a possible cut in policy rates and reduction in big banks’ RRR. However, the central bank’s policy-setting Monetary Board (MB) at its March meeting kept key rates steady and left RRR untouched, noting the need to be cautious despite easing inflation.

“We, however, think that with inflation continuing to trend downward much within BSP’s target range and slow monetary expansion, we maintain our view that the MB will likely provide more liquidity to banks by cutting reserve requirements in H1-2019 and also reduce policy rates in H2. These should bolster sustained growth in the economy,” the analysts said.

In an email, ING Bank N.V.-Manila Branch Senior Economist Nicholas Antonio T. Mapa said he expects big banks’ RRR to be reduced by 100 bps in the near term and 200 bps in total for the year.

Meanwhile, bank lending growth also slowed in March on softer demand from the household sector.

Outstanding loans increased by 9.9% year-on-year in March, slower than the 13.7% pace logged the previous month. Inclusive of reserve repurchase agreements (RRP), bank lending growth decelerated to 9.3% from 13.9% in February.

Production loans accounted for the bulk of the credit at 89.5% even as growth slowed to 11.4% in March from 13.6% the previous month.

Construction loans booked the highest increase at 41.7%, followed by financial and insurance activities at 32.7%; wholesale and retail trade, repair of motor vehicles and motorcycles at 11.6%; manufacturing at 10.6%; electricity, gas, steam and airconditioning supply at 9.4%; and real estate activities at 8.7%.

Loans for household consumption declined by 5.8% in March, a reversal of the 14.9% increase in February, BSP data showed, dragged by softer demand for credit card loans and year-on-year decreases in motor vehicle loans, salary-based general purpose consumption loans, and other types of household loans during the month.

“Going forward, the BSP will continue to ensure that the expansion in domestic credit and liquidity proceeds in line with overall economic growth while remaining consistent with the BSP’s price and financial stability objectives,” the central bank said. — R.J.N. Ignacio

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