Money Supply Jumps 30%

PHILIPPINES - In Brief 06 Sep 2013 by Romeo Bernardo
As expected, the mandated partial removal of trust funds from the BSP's SDA facility contributed to a substantial 30% increase in M3 in July compared with an already high 20% the previous month.  In addition to accelerated growth in deposit levels, the BSP also attributed the increase to higher foreign exchange inflows and expanded domestic public and private lending.  The BSP statement says that it does not expect high money growth to pose significant inflationary pressures since it views this as temporary in light of the operational adjustments to its SDA window.   We are inclined to agree with the BSP's prognosis at this time given the still benign inflationary environment and anticipated pullback of foreign funds and thus, continue to expect the Monetary Board to keep policy rates unchanged next week.  However, with trust entities still to remove the remaining 70% of their deposits by end-November, we anticipate even higher money growth in the coming months and will be watchful of any signs of unhinged inflationary expectations that may cause the BSP to contemplate its own early exit from policy accommodation.

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