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Domestic Liquidity Accelerates in November 2003


Preliminary data on domestic liquidity (M3) indicated that demand for money grew by 4.6 percent year-on-year to reach P1.68 trillion as of end-November 2003. The growth in M3 in November is at a faster clip compared to the 2.5 percent recorded in the previous month. The increase in M3 was traced mainly to the sustained expansion in the net foreign assets (NFA) of the monetary system (which consists of the BSP and the banking system) and the improvement in the level of domestic credits to both the public and private sectors.

The NFA of the monetary system grew steadily by 19.9 percent from 19.8 percent year-on-year growth in October 2003 due mainly to the sustained investments in foreign-currency denominated assets by deposit money banks (DMBs). Similarly, net domestic credits continued to rise in November as demand for government securities remained strong. As a result, growth in credits to the public sector accelerated to 13.4 percent year-on-year in November from only 11.2 percent in the previous month.

Similarly, credits to the private sector have been growing steadily over the past 12 consecutive months, rising by 2.6 percent in November and 2.3 percent a month earlier. However, the growth in private sector credit continued to be modest as bank lending remains subdued. The total outstanding loans of commercial banks rose only by 0.8 percent year-on-year as of end-October amid the relatively slow improvement in banks’ NPL ratio. The volume of production index (VOPI) of the manufacturing sector derived from the Monthly Integrated Survey of Selected Industries (MISSI) published by the National Statistics Office (NSO), dipped further by 3.9 percent year-on-year in October from the 3.2 percent contraction in September. Meanwhile, the value of production index (VAPI) from the same survey grew steadily in October at 3.6 percent, year-on-year as in the previous month.

In the months ahead, lending activity is expected to improve as demand conditions and business confidence continue to improve. Business optimism over increased consumer demand (as indicated, for example, in the BSP’s Fourth Quarter Survey on Business Expectations) as well as the other leading indicators of economic activity are expected to encourage stronger domestic demand, which could strengthen further the demand for money in the months ahead. Specifically, consumer spending has remained robust, rising by 4.9 percent in the third quarter, from the 4.3 percent annual pace in the same quarter a year ago. In addition, the cumulative power sales by Meralco as of November 2003, a leading indicator of overall power consumption, grew by 4.5 percent year-on-year, significantly higher than the 0.2 percent during the same period in the previous year. Meanwhile, passenger car sales increased in the last two consecutive months by 81.9 percent and 53.3 year-on-year in October and November 2003, respectively, as against the contraction recorded in the past nine months.

Amid all these indications of the pace of economic activity moving forward, the monetary authorities will continue to ensure that the stance of monetary policy remains supportive of a low-inflation growth path.

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