Domestic liquidity or M3 reached P1.43 trillion as of end-December 2000, reflecting a 5.0 percent increase from the level a year ago. The December M3 growth was slower than the 8.8 percent year-on-year rise recorded in the previous month. This was partly the result of a base effect from the previous year due to the liquidity build-up in late 1999 in preparation for the Y2K changeover. On a month-on-month basis, M3 growth continued to pick up from 3.1 percent in November to 4.3 percent in December. This was indicative of the seasonal rise in money demand to support increased consumer spending during the holidays.
The continued growth in domestic liquidity also reflected the sustained rise in private and public sector credits. Net domestic credits to the monetary system rose by 8.7 percent year-on-year in December compared to 8.1 percent in the previous month. In terms of sectoral allocation, credits to the private and public sectors grew by 8.2 percent and 9.8 percent, respectively, during the same period.
The sustained growth in the demand for money and credit augurs well for the economy’s growth momentum. This is consistent with the positive trends shown by data on indicators of real sector activity. Real GNP grew stronger by 4.2 percent in 2000 compared to 3.7 percent in 1999, while real GDP rose by 3.9 percent from 3.3 percent in 1999. Output in the manufacturing sector likewise showed a sustained rise in the first 11 months of 2000, with the value of production rising by 24 percent year-on-year and the volume of production growing by 13.7 percent.
By ensuring that adequate liquidity is available to fuel the economic recovery, the BSP remains supportive of the economy’s output growth objective. In fact, the renewed stability in domestic financial markets has allowed monetary authorities to implement a cumulative policy rate reduction of 400 basis points since 4 December 2000, thereby effectively restoring policy rates to their pre-October 13, 2000 levels. The corresponding decline in interest rates is expected to stimulate greater investment demand which, in turn, should help pave the way for a sustained expansion in domestic economic activity.