Money-supply growth seen to slow

CENTRAL BANK CONFIDENT THAT ANTILIQUIDITY MEASURES WILL WORK

By Jun Vallecera

Reporter

The antiliquidity measures put in place recently by the Bangko Sentral ng Pilipinas (BSP) are expected to diminish the impact of the more than P500 billion sloshing around in the system with no real benefits to the economy, BSP governor Amando M. Tetangco Jr. said on Friday. “We do not see M3 growing above 20 percent anymore following the adoption of these measures. It should go below 20 percent after some time,” he said in a briefing. Timing is difficult to predict because, according to Tetangco, the impact depends on how the market reacts and how the country’s balance of payments plays out over the near term. While the hoped-for reaction was for domestic liquidity to slow down, the continued balance of payment surplus and the market’s take on the antiliquidity measures could “push back” the anticipated slowdown just as much, he said. M3 or domestic liquidity growth had been brisk, expanding above 20 percent for the second month in a series in January and worrying the authorities for its inflationary impact 15 to 21 months down the line. It was programmed to grow by only 13 percent last year but actually expanded by 22 percent, significantly far more peso liquidity growth of only 9 percent in 2005. Tetangco said the Philippines was a victim of its own success, money supply having grown exponentially as a result of the rapid growth in the current account. The current account surplus, in turn, was the result of buoyant investor mood triggered by the strengthening fiscal sector and boosted further by billion-dollar monthly remittances from millions of overseas Filipino workers, Tetangco explained. But he expressed optimism the new measures would work against continued domestic liquidity expansion. He also said the inflationary impact  of rising liquidity has weakened in recent year as more financial products and services enter the market. Products like financial derivatives and services as automated teller machines and the proliferation of credit cards tend to restrict the level of liquidity as people spend what money they have only when the need arises. Before ATMs and credit cards, people keep cash in their wallets in anticipation of every need, and this tended to keep liquidity high, Tetangco explained. The measures the BSP instituted include enticing government-owned and -controlled corporations and the pension fund systems to make placements with them through what Tetangco said were market-determined but still attractive interest rates. This also include allowing the various trust units, which were previously denied access, to participate in the lucrative overnight market when the BSP pays handsome returns for placements as high as 7.5 percent. Government securities investments, in comparison, pay more or less 3 percent or 4 percent and for far longer terms. The BSP also sought to capture excess cash in the system by recognizing the special deposit accounts, or SDAs, of banks as alternative compliance to the strict observance of minimum reserve levels for banks that accept government deposits. SDAs are cash and the more of them brought to the BSP facility, the less there will be sloshing around in the system.

 

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