M3 growth steady in Oct.

M3 growth steady in Oct.

By Keisha B. Ta-asan, Reporter

GROWTH in money supply remained steady in October, even as bank lending accelerated for the first time in seven months, the Bangko Sentral ng Pilipinas (BSP) said on Wednesday.

Data from the BSP showed domestic liquidity, as measured by M3, expanded by 8.2% to P16.7 trillion in October. The pace of growth was the same as September.

On a month-on-month seasonally adjusted basis, M3 increased by 0.7%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the October M3 growth rate is still among the fastest in nearly two years or since February 2022, which reflects the continued excess liquidity in the finan-cial system.

“Faster M3 growth in recent months was supported by the easing trend in headline inflation in recent months, which reduced the need to siphon off excess liquidity from the financial system to better man-age/control inflation and inflation expectations,” he said in a Viber message.

Headline inflation eased to 4.9% in October from 6.1% in September and 7.7% in October 2022. It marked the slowest pace in three months.

However, October still marked the 19th straight month that inflation breached the central bank’s 2-4% target band.

Based on BSP data, domestic claims jumped by an annual 10.2% in October, faster than the revised 9.7% in September.

Claims on the private sector rose by 7.6% in October, faster than the revised 6.5% growth a month ago. This was driven by continued expansion in bank lending to nonfinancial private corporations and households.

Meanwhile, net claims on the central government increased by 19.1% in October, slowing from the revised 19.5% in September due to the decline in the National Government’s deposits.

Net foreign assets (NFA) in peso terms inched up by 2.1% in October, faster than the 1% growth in the previous month.

“The BSP’s NFA grew by 4.7% in October after expanding by 2.3% in the previous month. Meanwhile, the NFA of banks contracted on account of higher bills payable and foreign deposit liabilities,” the central bank said.

“Looking ahead, the BSP will continue to ensure that domestic liquidity conditions remain appropriate to support the prevailing stance of monetary policy, consistent with its price and financial stability objectives,” it added.

The BSP added that it will continue to ensure domestic liquidity conditions are consistent with price and financial stability.

Meanwhile, separate BSP data showed outstanding loans by big banks rose by 7.1% to $11.3 trillion in October from $10.55 trillion a year earlier.

The October credit growth was faster than the 6.5% expansion seen in September, marking the fastest pace in bank lending in two months or since the 7.2% seen in August.

On a month-on-month seasonally adjusted basis, outstanding universal and commercial bank loans inched up by 1.4%.

Security Bank Corp. Chief Economist Robert Dan J. Roces said the uptick in bank lending may be seasonal.

“October is a time when certain industries typically experience increased borrowing needs due to seasonal factors, unrelated to the broader economic climate, such as manufacturing where inventory buildup takes place in time for the holidays, which is peak consumption season,” he said.

Mr. Roces noted October data may not fully reflect the recent interest rate hikes by the BSP.

“Time lag effect may also be present, as the impact of policy changes like interest rate hikes might take time to fully manifest in lending data,” he added.

The Monetary Board delivered an off-cycle rate hike of 25 basis points (bps) in October, bringing the key interest rate to a fresh 16-year high of 6.5%. With this, the BSP has tightened by a total of 450 bps since May 2022 to tame inflation.

“The pickup in bank lending growth may also be consistent with relatively lower bad loan ratio in recent months,” Mr. Ricafort said.

The banking industry’s nonperforming loan (NPL) ratio inched up to 3.44% in October from 3.4% in the previous month and 3.41% a year ago. It marked the highest NPL ratio since 3.46% in May.

“Faster credit growth would continue to be a bright spot for the economy and could also bode well in terms of faster economic growth and would also support relatively lower NPL ratio as seen in recent months,” Mr. Ricafort said.