Based on preliminary data, demand for money strengthened in May 2001 as the year-on-year growth in domestic liquidity (M3) accelerated to 14.7 percent from the 13.0 percent revised growth in April. The expansion in domestic liquidity could be traced partly to the sustained rise in reserve money, which grew by 12.3 percent in May. On a monthly basis, domestic liquidity declined by 0.1 percent compared to the 2.2 percent growth registered in April.
The growth in domestic liquidity is reflective of the continued increase in the supply of credit being channeled to the productive sectors of the economy. Total net domestic credits grew by 6.9 percent year-on-year in May. This rate of growth was, however, a deceleration from the 11.6 percent year-on-year growth registered in April. Credits to the private and public sectors both grew, albeit at a decelerated pace of 4.8 percent and 12.2 percent, respectively, in May 2001 compared to 5.9 percent and 23.9 percent in the same period a year ago. The deceleration in domestic credit growth could be due to the deposit money banks’ increasing investments in foreign assets, mainly foreign securities.
The increase in the demand for money and the continued growth of credit, albeit at a slower pace, suggest that the growth momentum of the economy could be sustained. This is supported by leading indicators of demand. For example, Meralco power sales rose by 5.2 percent year-on-year in may, a reversal of the negative 0.32 percent year-on-year growth posted in the previous month. The year-on-year growth of the Volume of Production Index (VOPI) and Value of Production Index (VAPI) in manufacturing increased by 12.7 percent and 21.0 percent, respectively, compared to the 10.4 percent and 19.2 percent year-on-year growth registered in the previous month. On a monthly basis, however, the VOPI and the VAPI declined by 14.9 percent and 15.2 percent, respectively.
In the months ahead, the BSP will continue to ensure that an adequate level of domestic liquidity is made available to the system consistent with the output and price objectives of the economy.