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Domestic liquidity to remain high

Domestic liquidity is expected to remain high following the ban against trust entities from tapping the Bangko Sentral overnight deposit facilities and the Term Deposit Facility.

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

He, however, pointed out that he did not see these factors becoming a problem because, for one, 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 central bank’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.
As of end-October 2016, domestic liquidity or M3, which is the total money sloshing in the economy in a certain period, rose 12.8 percent year-on-year to Php 8.9 trillion from a growth of 12.7 in the previous month.

“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.