By PressOnePH Business

Billions of pesos in bank reserves made available by the central bank for borrowers have so far proven ineffective in accelerating lending, providing another indication that second-quarter economic growth would likely disappoint when reported next week.

The bulk of blame is on slower government spending that reduced credit claims by state agencies and corporations, but there were also signs of a slowdown in the private sector.

In a report on Wednesday, the Bangko Sentral ng Pilipinas (BSP) said money supply in the financial system, as measured by M3, grew 6.4 percent year-on-year to P11.8 trillion as of end-June.

The pace of increase was steady from May but slowed from 7 percent in April. The sluggish expansion in money supply has affected bank lending, which went up at a “slower rate” of 10.5 percent in end-June.

In a growing economy, an ideal scenario would be for money supply to expand at twice the growth pace of the local economy, to ensure sufficiency of financial resources for economic activities.

After hitting a seven-year low of 4.2 percent in April, the BSP acted to reverse a dramatic deceleration in money supply growth through a three-part reduction in the reserves banks are required to keep in the central bank.

In cutting bank reserves, BSP was hoping more funds would be used to lend and support the economy, as measured by gross domestic product (GDP), that grew 5.6 percent in the first quarter, the slowest in four years. The second-quarter GDP figures will be reported on Aug. 8.

The first 100 basis-point cut on reserves — which unleashed about P100 billion in the economy — occurred in May, followed by 50 basis points each on June 28 and July 26.

The latest BSP report showed that reserve reduction has so far failed to boost liquidity to double-digit levels as desired by the central bank. Domestic credit is to blame, after it slowed to 6.2 percent as of June from 6.8 percent the previous month.

Broken down, data showed monetary claims by the government declined 3.8 percent, while that of state non-financial corporations dropped by a faster 10.8 percent.

Claims by the private sector went up 7.6 percent in the first half, although this was marked a slowdown from 9.3 percent from January to May.

The Duterte administration has failed to recover some ground in spending in May and June even after getting a new budget approved in April 15, delayed by four months following budget wrangling in Congress.

During the first four months of the year, the government operated under the old 2018 outlay, which did not contain new programs and projects and therefore left new ones unfunded, and the economy slowing.

Economic officials claim to have devised a catch-up plan to increase spending in the next couple of months, but as of June, disbursements by agencies were still down 2 percent year-on-year.