Domestic liquidity or money supply in the country grew to P17.4 trillion or 5.9 percent as of December last year from seven percent as of November with P16.8 trillion, according to the Bangko Sentral ng Pilipinas.

Month-on-month, domestic liquidity rose by 0.4 percent.

Domestic liquidity involves savings, time deposits, checks, and deposit substitutes such as commercial papers and promissory notes.

Claims on residents rose

Breaking it down, claims on residents increased by ninie percent from 9.7 percent year-on-year.

Claims on the private sector rose by 8.5 percent from 8.3 percent as banks continued substantial lending to non-financial firms and households.

On the other hand, deposits of the national government with the BSP declined, resulting in a 14.2 percent growth in claims on the public sector from 17.3 percent.

Meanwhile, claims on non-residents or net foreign assets grew by 4.3 percent from 3.2 percent.

The BSP, on its part, saw a 7.4 percent increase in claims on non-residents, while the private banks posted a reduction due to lower interbank receivables.

Higher money supply

A higher money supply increases economic activities among consumers and businesses. However, it also drives prices of goods and services higher.

“Going forward, the BSP will continue to ensure that domestic liquidity conditions remain consistent with the prevailing stance of monetary policy, in keeping with its price and financial stability objectives,” the central bank said.

To prevent excessive domestic liquidity, the BSP raises its policy interest rates and reserve requirement ratio for private banks.

BSP Governor Eli Remolona last month said the central bank is keeping its hawkish stance despite recent lower inflation rates.

The central bank will announce any policy rate adjustment on 15 February.