Domestic liquidity (M3) and bank lending slowed in December 2025, according to preliminary data from the Bangko Sentral ng Pilipinas (BSP).

In two separate reports released yesterday evening, the central bank said M3 growth settled at 7.0 percent — a four-month low based on previous BSP reports — while outstanding loans from universal and commercial banks (U/KBs) expanded by 9.2 percent year on year, marking the slowest pace for full-year 2025.

M3 serves as a broad measure of spendable money in the economy, including currency in circulation, bank deposits, and other financial assets easily convertible to cash. The BSP said money supply reached P20.1 trillion in December, higher than the P19.4 trillion recorded in the previous month. Year-on-year M3 growth also eased by 0.6 percentage point from November.

The central bank noted that despite the slowdown, M3 growth remained “broadly stable” from November after adjusting for seasonal fluctuations.

Meanwhile, outstanding loans to residents expanded by 9.7 percent in December, down from 10.7 percent in November, while outstanding loans to non-residents declined by 8.1 percent, widening from a 4.5-percent drop in the same period.

Loans intended to fund business activities grew by 8.0 percent in December. Lending expanded in key industries, including real estate activities (8.3 percent); electricity, gas, steam, and air-conditioning supply (26.8 percent); wholesale and retail trade, including motor vehicle and motorcycle repair (10.8 percent); and financial and insurance activities (3.9 percent).

Consumer loans to residents — including credit card, motor vehicle, and salary-based general-purpose loans — grew by 21.4 percent, slower than the 22.9 percent growth recorded in the previous month.

The BSP added that outstanding U/KB loans declined by 2.0 percent month on month in December after adjusting for seasonal factors.

Money supply and bank lending maintain a reinforcing relationship. Higher M3 increases deposits and reserves in the banking system, easing funding constraints and allowing banks to expand credit. When banks issue loans, they create deposits, which raise money supply and boost domestic liquidity.

Lending also finances consumption — a major component of Philippine gross domestic product (GDP) — as well as investment. Stronger economic activity supports income growth and savings, further reinforcing liquidity.

Given the weak GDP performance for full-year 2025 and relatively low headline inflation, many analysts believe current economic conditions may allow the BSP to further reduce its key policy rate during the Monetary Board’s 19 February meeting.

Juan Paolo Colet, Managing Director at China Bank Capital Corporation, said the weak economic outlook and relatively low January inflation rate of 2.0 percent — within the BSP’s forecast range — provide sufficient headroom for a rate cut.

“With inflation still within the target range, the BSP has sufficient room to continue monetary easing to support economic growth,” he said.

“Given the low GDP print in the last quarter of 2025 and the potential risk of lingering weakness in the first quarter of 2026, there is a good chance the BSP will cut its policy rate on February 19,” Colet added.

BSP Governor Eli M. Remolona Jr. said in Dumaguete City last week that the central bank is reassessing its outlook for an economic rebound in the second half of 2026 following GDP growth of 4.4 percent for 2025 — well below the government’s target range of 5.5 to 6.5 percent. Remolona added that a February rate cut remains an option, subject to incoming BSP data.