Banks very liquid, M3 seen to remain high

Domestic liquidity or M3 is expected to remain high following the ban against trust entities from tapping the Bangko Sentral ng Pilipinas’ (BSP) overnight de­posit facilities and the Term Deposit Fa­cility (TDF).

As of end-October 2016, domestic liquidity or M3, which is the total money in circulation rose 12.8 percent from last year to P8.9 trillion from a growth of 12.7 percent the previous month.

BSP Deputy Governor Diwa Guin­igundo said the end of the holiday sea­son, when banks held on to their cash to service fully their clients and the public’s need for cash, is another factor which re­sulted in high liquidity in the system.

He, however, pointed out that he did not see these factors becoming a problem because funds from trust units of banks were expected to be deposited with the BSP facilities as bank deposits.

He also noted the rise in bid to cover ratio of the BSP’s TDF as a result of high­er bids of financial institutions because of their strong cash position.

Last December, the TDF’s 28-day facility experienced under subscriptions after tenders were lower than the P150 billion offering.

Monetary officials attributed this to seasonal factors.

During the auctions in the first two weeks this January, banks’ tenders for both the seven-day and 28-day TDF sur­passed the P30 billion and P150 billion offering, respectively.

This week, bid coverage ratio of the seven-day facility improved to 1.6403, higher than the 1.2602 during the Dec. 28, 2016 auction.

Bid coverage ratio of the 28-day fa­cility this week is 1.1470, lower than the 1.2602 last Dec. 28 but better than the 0.7548 last Dec. 1.

“Demand for credit remains the prin­cipal driver of money supply growth,” the central bank said.

M3 peaked at 37.3 percent in January 2014, which was way above the normal growth of higher single digit.