Domestic liquidity grows 8%, says Bangko Sentral

The Bangko Sentral ng Pilipinas (BSP) on Monday said domestic liquidity grew by 8 percent in May from 7.3 percent in April. Monetary authorities are monitoring the amount of liquidity in the financial system to curb additional inflationary pressures. The Philippines’ domestic liquidity or M3 amounted to P4.261 trillion as of end-May, or P316 billion over the P3.945 trillion recorded in the same period last year, according to the BSP. M3 refers to the amount of money circulating in the domestic economy. Due to sustained foreign exchange remittances from migrant Filipino workers as well as portfolio and direct investments, net foreign assets (NFA) jumped 15.3 percent to P3.015 trillion as of end-May from P2.614 trillion, according to BSP data. “The steady increase in net foreign assets continued to fuel the expansion of domestic liquidity," the BSP explained. Meanwhile, net domestic assets (NDA) contracted by 6.2 percent to P2.337 trillion from P2.491 trillion, statistics showed. “The BSP continues to closely monitor monetary conditions to ensure that the amount of liquidity in the financial system remains in line with the BSP's price and financial stability objectives," the central bank also said. Helping shape BSP policy Liquidity growth is one of the most important tools to determine the BSP’s monetary policy. The reserve requirement ratio for banks rose by 100 percentage points, to 20 percent from 19 percent starting June 24 to siphon off P38 billion from the financial system to help BSP’s Monetary Board curb additional inflationary pressures. To keep inflation expectations well-anchored, the Monetary Board also raised interest rates by 25 basis points in March and by another 25 basis points in May, due to the continued build-up of inflation pressures amid rising global oil and food prices. This brought the overnight borrowing rate to 4.5 percent and the overnight lending rate to 6.5 percent. Between December 2008 and July 2009, the Philippines’ key policy rates were slashed to cushion the impact of the global financial crisis on the local economy, bringing the overnight lending rate to a record low 4 percent and the overnight lending rate to 6 percent. — PE/VS, GMA News