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July 21, 2024

Philippine money supply and bank lending growth slows as rate hikes take effect

In June, both money supply (M3) and bank lending growth in the Philippines experienced deceleration due to the ongoing impact of policy rate adjustments, according to data from the Bangko Sentral ng Pilipinas (BSP). Preliminary data revealed that domestic liquidity, known as M3, expanded by 5.9 percent to approximately P16.4 trillion in June, a notable slowdown compared to May’s 9.4 percent growth rate. Month-on-month and seasonally adjusted, M3 saw a slight increase of about 0.2 percent.

Domestic claims grew by 10.1 percent, a decrease from May’s 11.4 percent. Furthermore, claims on the private sector decreased to 7.9 percent, down from the previous month’s revised 9.3 percent. This decline was attributed to the continuous expansion of bank lending to non-financial private corporations and households.

Net claims on the central government also exhibited slower growth, recording 17.2 percent compared to May’s 18.3 percent. This decrease was primarily due to national government borrowings. In terms of peso value, net foreign assets (NFA) decreased by 2.7 percent following May’s 2.7 percent expansion. The central bank’s NFA position dipped by 0.6 percent in June after a 4.2 percent growth in the previous month. Banks also reported a contraction in their NFA, primarily due to increased bills payable.

The BSP emphasized its commitment to ensuring that domestic liquidity conditions align with the BSP’s objectives for price and financial stability.

Regarding bank lending, preliminary data revealed that outstanding loans from universal and commercial banks (U/KBs), excluding reverse repurchase (RRP) placements with the BSP, grew at a slower pace of 7.8 percent in June compared to May’s 9.4 percent. Month-on-month and seasonally adjusted, outstanding U/KB loans net of RRPs increased by 0.6 percent.

Outstanding loans for production activities showed a growth rate of 6.3 percent, which was slower than the previous month’s 7.9 percent. This growth was driven by increased lending to key sectors such as electricity, gas, steam, and air-conditioning supply (11.8 percent); wholesale and retail trade, including the repair of motor vehicles and motorcycles (9.7 percent); real estate activities (3.8 percent); financial and insurance activities (7.7 percent); and information and communication (11.2 percent).

Outstanding loans to nonresidents experienced a slowdown, declining from 13.2 percent to 4.8 percent. Consumer loans to residents, on the other hand, saw a slight increase of 23.7 percent, up from May’s 22.7 percent. This uptick was attributed to increased credit card and motor vehicle loans.

The central bank noted that the slowdown in credit activity reflects the impact of monetary policy tightening as it continues to influence the economy. The BSP remains prepared to ensure that domestic liquidity and lending dynamics align with its objectives for price and financial stability.

The Monetary Board of the BSP had raised key interest rates by a total of 425 basis points starting last year in response to surging inflation. In recent policy meetings, the BSP has paused rate hikes as inflation moderated.

Rizal Commercial Banking Corp.’s chief economist, Michael Ricafort, pointed out that higher prices have dampened consumer spending and the desire to take out loans. He also cited the slower loan growth as a result of “higher base effects a year ago,” which included election-related spending and accelerated government infrastructure projects, which are not present this year. Looking ahead, M3 growth could remain subdued as long as inflationary pressures persist and monetary policy remains restrictive to meet the BSP’s inflation targets.