Money circulating through the Philippine financial system continued to expand in July, giving businesses, consumers and the government a larger pool of funds to finance spending and investment even as external factors slightly tempered the pace of growth.
Domestic liquidity, or M3, rose 10.3 percent year-on-year to ₱20.5 trillion in July, according to preliminary data from the Bangko Sentral ng Pilipinas (BSP). While the pace eased from the 10.7-percent expansion recorded in June, liquidity growth remained strong enough to provide an important financial backbone for economic activity.
M3 is the broadest commonly used measure of money supply, covering currency in circulation, deposits and other financial assets that can readily be converted into cash.
For the economy, the significance of expanding liquidity goes beyond the amount of money sitting in banks.
A healthy supply of money allows banks to extend credit, businesses to finance expansion and working capital, households to purchase homes, vehicles and other goods, and the government to fund infrastructure and public services.
In effect, liquidity serves as part of the economy’s financial bloodstream. When money moves efficiently through banks, companies and households, it can support production, employment, consumption and investment.
Credit keeps money flowing into the real economy
The BSP said July’s liquidity expansion continued to be driven by borrowing from both the private and public sectors.
Bank lending remained a major channel through which money entered productive parts of the economy, providing financing to companies as well as households.
This is particularly important because liquidity produces its strongest economic impact when funds move beyond bank balance sheets and into actual economic activity—from companies purchasing equipment and inventories to consumers financing major purchases.
Government financing activities also contributed to the increase in liquidity.
The National Government’s issuance of debt securities, together with withdrawals of government deposits held with the BSP and commercial banks to finance expenditures, injected additional money into the domestic economy.
Government spending funded through these channels can ripple through the broader economy as payments to contractors, workers and suppliers eventually translate into household income, business revenues and additional deposits in the banking system.
Foreign position puts brakes on faster growth
The expansion would have been stronger if not for weaker net foreign assets, or NFA.
NFA represents the difference between the foreign claims and foreign liabilities of the BSP and the banking system.
The BSP’s net foreign assets grew by a slower 2.1 percent from a year earlier, while banks recorded a contraction in NFA because of higher foreign-currency liabilities, particularly bills payable.
That deterioration partly explains why overall M3 growth moderated from June.
Still, the latest liquidity figures suggest that domestic sources of money creation—particularly credit and government financing—remain powerful enough to support economic activity despite softer external contributions.
More money brings opportunity—and a balancing act
For policymakers, however, stronger liquidity is not automatically better.
Too little money circulating through the economy could constrain credit, investment and consumer spending. But liquidity that expands too quickly relative to the economy’s capacity to produce goods and services can eventually add to inflationary pressures or encourage excessive borrowing and asset-price increases.
The challenge for the BSP is therefore to maintain enough liquidity to support economic growth without allowing financial conditions to become excessively loose.
With ₱20.5 trillion circulating across the financial system, July’s numbers point to an economy that continues to have substantial funding available for consumption, investment and government activity.
The BSP said it will continue monitoring liquidity conditions to ensure that the amount of money flowing through the economy remains consistent with its objectives of maintaining price stability and financial stability.
For businesses and households, that balance will matter increasingly in the months ahead. The strength of liquidity may help determine not only how much credit is available, but also how quickly that money translates into investment, jobs, spending and ultimately economic growth.