Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort
MANILA – An economist forecasts further deceleration of domestic liquidity (M3) growth in the coming months partly due to the Bangko Sentral ng Pilipinas’ (BSP) excess liquidity siphoning activities.
Preliminary data released by the central bank Thursday showed a slower M3 growth last October at 11.8 percent from the revised 12.2 percent in the previous month.
“Slower M3 growth in recent months may have partly reflected some of the recent slowdown in loan growth (the slowest in nearly 12 years at 1.9 percent year-on-year as of October 2020) amid slower economic/demand conditions after the Covid-19 lockdowns/pandemic,” said Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort in a report.
Ricafort expects this trend to continue as markets anticipate a possible easing measure after the meeting of the Monetary Board (MB) on Dec. 17 through a cut in banks’ reserve requirement ratio (RRR).
The measure is apart from the auction of weekly term deposit facility (TDF) and BSP securities facilities that help siphon off excess liquidity in the system, he said.
Ricafort said a one percentage point reduction in big banks’ RRR is equivalent to around PHP100 billion worth of liquidity that will be released into the economy which would increase domestic liquidity.
“The economy still needs all the support measures that it could get such as through further easing of monetary policy, which could still do the heavy lifting amid the lack of government funds for more fiscal/economic stimulus measures, in an effort to further bring down borrowing costs to help spur/encourage greater demand for loans that lead to more investments, jobs, and other business/economic activities, thereby improving economic recovery prospects,” he said.
Ricafort said the additional liquidity that a possible RRR cut might provide will be boosted by continued BSP purchases of government securities in the secondary market.
“Increased government borrowings for 2020 and 2021, at least PHP3 trillion for each year in view of increased government spending especially for various Covid-19 programs and wider budget deficits, also in view of reduced government tax revenues brought about by Covid-19, could somewhat siphon off some of the excess liquidity from the financial system,” he added. (PNA)
