Tuesday, 7 April 2009

Philippine central bank makes P500-B available, hoping to jumpstart economy

GMANews.TV
http://www.gmanews.tv/story/155876/BSP-makes-P500-B-available-hoping-to-jumpstart-economy

The sole Philippine agency tasked to print, issue, distribute, and retire Philippine currency has circulated nearly half a trillion pesos in February, a move seen to jumpstart the economy.

By making more cash available in the financial system, the Bangko Sentral ng Pilipinas (BSP) hopes to stimulate the economy by encouraging banks to lend, businesses to borrow, and consumers to buy.

Domestic liquidity – which measures the amount of available credit in the system – expanded by 14.6 percent during the second month this year, latest data from the BSP said.

The increase brought the amount of money in circulation to a total of P3.494 trillion, increasing by P445.45 billion for February alone.

The BSP was prompted to print more legal tender after private lenders have expressed apprehensions that defaults may increase, as indicated by the 15.1 percent drop in private sector credit during February.

Private sector credit reached P2.074 trillion in February, lower than the P2.388 trillion posted during the same month a year ago.

Similarly, private sector loans also contracted by nearly three percent from January’s P2.453 trillion.

“The rate of expansion in net domestic assets (NDA) [the BSP’s assets] slowed down to 6.5 percent in February from the previous month’s 9.4 percent, as the growth of credit extended to the private sector decelerated to 15.1 percent from the 18.3 percent growth registered in January," BSP Governor Amando M. Tetangco Jr. said.

"Credits extended to the public sector rose to 11.0 percent with the increase in lending to local government units and other public entities (23.8 percent), as well as to the national government (7.1 percent)," he added.

Injecting more money into the system was intentional, a move seen to curb the impact of the global crisis on the local economy, Tetangco said earlier.

Increased availability of cash and credit in the system was not only brought about by rising issuances of legal tender but moves undertaken by the BSP such as interest rate cuts – which make loans cheaper – and reducing deposit reserve requirements that frees up cash previously “frozen" or kept in the central bank’s vaults.

However, the BSP said that higher liquidity levels was not expected to be inflationary owing to easing price pressures, allowing inflation to fall to an average of 7.3 percent in February from 7.1 percent the month before.

The central bank’s “easy money" policy has prompted BSP deputy governor Diwa C. Guinigundo to appeal to Filipinos to "rekindle their entrepreneural spirit" so as not to waste the available liquidity.

Entrepreneurial efforts will “reinforce consumer demand," Guinigundo said.

Consumer demand comprises 70 percent of the Philippines’ total economic output.

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