Demand for money sustained its strong growth in March 2005 as domestic liquidity or M3 rose by 12.1 percent year-on-year to P2.15 trillion, based on data from the BSP’s Depository Corporations Survey (DCS).* This represents a continuation of the 12.0 percent year-on-year increase in the preceding month. On a monthly basis, M3 growth rose by 1.2 percent from 0.1 percent increase in the previous month.
The strong liquidity growth in March was due mainly to an increase in banks’ foreign exchange position on the back of continued capital inflows. In particular, deposit money banks’ (DMBs) foreign assets rose further by 25.3 percent year-on-year. The build-up in banks’ net foreign assets was traced to the accumulation of foreign exchange by banks, due partly to the strong inflows of dollars—from remittances by overseas Filipino workers (OFW) and portfolio investments—and the appreciation of the peso against the US dollar. Banks’ accumulation of foreign assets outstripped the rise in their foreign liabilities of 7.5 percent during the period. Likewise, the net international reserves of the BSP improved as its foreign liabilities fell by 59.8 percent, more than offsetting the 2.8 percent reduction in its foreign assets.
The increase in domestic liquidity was accompanied by sustained growth in economic activities, particularly in the manufacturing and services sectors. During the first quarter of the year, manufacturing grew year-on-year by 4.2 percent from 3.9 percent a year ago while services rose by 6.9 percent from 6.6 percent in the previous year. At the same time, sustained consumer spending, supported by robust inflows from OFW remittances, underpinned the growth in money demand.
Meanwhile, credits to the public sector continued to drive the expansion in net domestic credits. Public sector credits grew by 6.7 percent in March as demand for government securities by banks and investors continued to be strong. On the other hand, private sector credits rose by 2.2 percent in March with the modest pace in bank lending activities despite some improvements.
Over the policy horizon, monetary authorities will continue to support the economy’s growth objectives by ensuring an appropriate level of liquidity in the system. At the same time, the BSP remains firm in its commitment to mitigate pressures to inflation over the medium-term and to pay close attention to risks to the inflation outlook.
* The DCS, which replaces the Monetary Survey (MS) as the basis for measuring domestic liquidity, features an expanded list of surveyed institutions that includes the BSP, commercial banks, thrift banks, rural banks, non-stock savings and loan associations and non-banks with quasi-banking functions. The previously used MS included only data from the BSP and the commercial banks and some rural banks in its survey.