By Des Ferriols
The Philippine Star 04/02/2006
Remittances from overseas Filipino workers (OFWs) have fueled an acceleration in the country’s domestic liquidity growth, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.
The BSP said domestic liquidity, known as M3, grew by 9.4 percent in February, rising for the first time since it started to slow down in the latter part of 2005.
The BSP said the February growth in domestic liquidity was faster than the 8.4-percent year-on-year increase recorded in the previous month.
On a month-on-month basis, M3 grew by 1.1 percent in February following a 0.9-percent contraction last January, the BSP reported.
According to the BSP, the growth in liquidity continued to be driven by strong inflows of foreign exchange from OFW remittances and direct and portfolio investments.
The BSP said government borrowing from the domestic credit market continued to slow down as the state improved its fiscal position and reduced its need to borrow to finance its budget deficit.
The BSP reported that net lending to the public sector declined by 15.6 percent in February when the government out-performed its deficit target two months in a row this year.
On the other hand, credits to the private sector remained weak, posting a slight increase of 0.7 percent, the BSP said.
"The BSP continues to monitor the growth of domestic liquidity to ensure that it remains consistent with the BSP’s price stability objective," said BSP Governor Amando M. Tetangco.
"At the same time, the BSP will continue to pursue its efforts to strengthen the banking system in order to ensure that credit activity proceeds at a pace in line with real sector activity," he added.
The growth in domestic liquidity is one of the key indicators being monitored by the BSP in determining future policy actions.
Tetangco has repeatedly hinted that the BSP’s Monetary Board is not likely to change its policy stance even with the narrowing of interest rate differential between US and domestic interest rates.
The latest increase in US federal rates brought US rates ever closer to the
According to Tetangco, the interest rate differential is not a good guide by itself especially since the narrowing of the gap has not affected portfolio investments and the peso has remained strong despite a monetary reaction in the currency market.
The US Fedederal Reserve boosted the federal funds rate by one-quarter percentage point to 4.75 percent. This is the rate that banks charge each other on overnight loans, affecting a range of interest rates charged to consumers and businesses.
At present, the BSP’s overnight borrowing rate is at 7.50 percent and the lending rate is at 9.75 percent. But the actual benchmark rate is now at 4.978 percent for the 90-day treasury notes.
The market is expecting the BSP to finally take action as US rates increased, but Tetangco said the BSP’s inflation-driven policy stance need not change especially since inflation pressure is projected to ease in the second half of the year.
"We are projecting that our inflation rate would begin to ease in the second half of the year and there is a continued slowdown in domestic liquidity growth on top of that," Tetangco said.
http://www.philstar.com/philstar/news200604020701.htm
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