M3 growth slows in July to 14.5%

Money supply growth decelerated in July as the slowdown in economic activity continued following the easing of coronavirus disease 2019 (COVID-19) lockdown.

Domestic liquidity or M3, the broadest measure of money supply, rose 14.5% year-on- year, slowing from 14.9% in June, according to the Bangko Sentral ng Pilipinas (BSP) Friday. M3 rose 0.5% month-on-month.

The July M3 reading ended a streak of increased rates of expansion dating to March.

Demand for credit continued to prop up the money supply, the BSP said.

Growth in domestic claims increased 12.3% from 13.3% in the prior month.

Net borrowing by the central government expanded 51.7% in July, against 53.2% in the previous month. The central bank said this partly reflected the government’s higher funding requirements during the COVID-19 pandemic.

Meanwhile, growth in claims on the private sector, driven mainly by lending to non- financial corporations and households, also slowed to 6.1% in July from 7.2% in June with business operations were hampered by quarantine measures.

On the other hand, net foreign assets (NFA) rose 23% in July, against 15.7% growth in June.

“The continued expansion in the NFA reflected the increase in gross international reserves. Meanwhile, the growth in the NFA of banks accelerated as banks’ foreign assets rose on account of higher deposits with other banks, as well as interbank loans,” the BSP said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the central bank’s accommodating lending policy was insufficient in encouraging spending from consumers and businesses.

“Domestic liquidity showed double-digit growth but judging from the deceleration in loan activity, this may be more attributed to the reserve requirement ratio reductions carried out by the BSP.

However, throwing money at the problem will not solve the woes of the public if end-user demand remains largely absent amidst the decrepit labor market while uncertainty over the virus remains in the air,” Mr. Mapa said.

The central bank’s Monetary Board, at its fourth policy meeting for the year, kept the rates on the BSP’s overnight reverse repurchase, lending and deposit facilities at their record lows of 2.25%, 2.75% and 1.75%, respectively.

Bank lending slows further

Bank lending continued to ease for the fourth consecutive month in July, reflecting the deepening impact of the virus on economic activity.

Outstanding loans disbursed by universal and commercial banks and net reverse repurchase (RRP) placements with the BSP grew b6.7% in July, against 9.6% in June.

Loans for production activities also expanded 5.9% in July from 8.2% in the prior month.

The BSP said this was driven by lending to sectors including real estate (11.5%), information and communication (18.4%); financial and insurance (6.3%); electricity, gas, steam, and air conditioning supply (4.4%); human health and social work (46.7%); and transportation and storage (9.7%).

Loans to households grew 17.3% in July from 27% in June as demand for credit card, motor vehicle and salary loans weakened.

The central bank expects growth in bank lending to accelerate as quarantine measures loosen.

“Sustained monetary and fiscal policy support should likewise help shore up market sentiment as the economy gradually reopens” the BSP said.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said aggressive funding from the government reduced reliance on private banks.

“Increased fund-raising activities in the capital markets, especially thorugh bond markets, equity markets, and other securities, by the biggest companies in the country may have also resulted in the much lower demand for loans, as these big businesses have learned to reduce their reliance on traditional bank loans as a source of funding,” Mr. Ricafort said.

He added low interest rates on government securities turned borrowers away from private banks.

However, Mr. Ricafort sees bank lending expanding in the next few months as the government balances pandemic containment with the need to kickstart consumer spending.

“As an offsetting positive factor for loans growth, the government signalled that it would like to keep the economy as open as possible, even if new COVID-19 cases (arise), provided that stringent health protocols are strictly followed to prevent the further spread of the virus,” he said. — Kathryn Kristina T. Jose

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