The Philippine economy is navigating a complex landscape of fluctuating domestic liquidity and easing inflation, demonstrating resilience in the face of ongoing global economic uncertainties. Recent data from the Bangko Sentral ng Pilipinas (BSP) paints a picture of a nation maintaining stability while adapting to evolving market dynamics.
Preliminary figures revealed that domestic liquidity (M3) experienced a year-on-year growth of 6.8 per cent in January, reaching ₱18.1 trillion. While this represents a slight deceleration from the 7.7 per cent growth observed in December, it underscores the continued expansion of the money supply, a critical indicator of activity in the country’s economy.
On a month-on-month seasonally adjusted basis, M3 saw a marginal decline of 0.5 per cent, suggesting a period of consolidation following robust growth in the economy.
Driving this liquidity expansion in the country’s economy is a notable increase in domestic claims, which surged by 10.9 per cent year-on-year in January, up from 10.4 per cent in December.
Surge attributed to increased borrowings, sustained bank lending
This surge is largely attributed to a robust 13.1 per cent growth in claims on the private sector, fueled by sustained bank lending to non-financial private corporations and households. The national government’s increased borrowings also contributed, pushing net claims on the central government up by 7.4 per cent.
However, the growth in net foreign assets (NFA) moderated, rising by 2.6 per cent year-on-year in January, compared to 6.0 per cent in December.
While the BSP’s NFA expanded by 4.2 per cent, the NFA of banks experienced a decline, primarily due to higher foreign currency-denominated bills and bonds payable.
Despite these shifts in liquidity, the BSP remains steadfast in its commitment to maintaining price and financial stability. In line with this, the BSP projects February 2025 inflation to settle within the range of 2.2 to 3.0 per cent.
Upward price pressures, including higher electricity rates, rising oil prices, and increased costs of key agricultural commodities like fish and meat, are anticipated.
However, these pressures are expected to be partially offset by lower prices of rice, fruits, and vegetables, as well as favorable base effects.
Sustaining PH economy’s ability to maintain stability
This projection aligns with the encouraging news that headline inflation in February 2025 dropped significantly to 2.1 percent year-on-year, down from 2.9 percent in January. This figure fell below both market expectations and the BSP’s forecast range, signaling a welcome moderation in price pressures. The year-to-date average inflation rate of 2.5 percent remains comfortably within the government’s target range of 2-4 percent.
The decline in headline inflation can be attributed to lower food inflation, particularly for vegetables, driven by improved supply conditions. Local retail rice prices also continued to decline, reflecting lower imported rice costs.
Additionally, easing inflation for housing, water, electricity, gas, and other fuels, coupled with downward adjustments in gasoline and diesel prices, contributed to the moderation in non-food inflation.
Core inflation, which excludes volatile food and energy prices, also declined further to 2.4 percent in February, down from 2.6 percent in the previous month, reinforcing the trend of easing price pressures.
The February inflation outturn supports the BSP’s assessment that inflation will remain within the target range over the policy horizon. However, the central bank remains vigilant, acknowledging the ongoing uncertainties surrounding global economic policies and their potential impact on the domestic economy.
“The Monetary Board will continue to take a measured approach in ensuring price stability conducive to balanced and sustainable growth of the economy and employment,” stated the BSP in a media advisory. “We will carefully consider all new available information at our upcoming monetary policy meeting on April 3, 2025.”
The Philippine economy’s ability to maintain stability amidst evolving liquidity conditions and easing inflation underscores its resilience. As the BSP continues to monitor global and domestic economic developments, the nation remains poised for balanced and sustainable growth.