Domestic liquidity (M3) continued to increase at 11.1 percent year-on-year in August. This growth, however, was slower compared to the 11.9 percent year-on-year growth registered in July. The slowdown in M3 growth can be attributed to the increases in the liquidity reserve requirement in July and August, which compelled banks to allocate their excess funds to comply with the regulatory adjustment in the reserve requirement.
Domestic credits of the monetary system grew by 4.1 percent in August, reflecting a deceleration from the 5.2 percent year-on-year increase in the previous month. The continued— though moderated—rise in domestic credits was driven largely by the uptrend in public sector credits, which increased by 14.2 percent from the 9.6 percent year-on-year rise in July. This can be traced, in part, to the increase in the National Government’s domestic financing requirements and investors’ preference for fixed income government securities relative to equities, given the volatiliy in share prices.
Meanwhile, private sector credits managed to grow by only 0.2 percent compared to the 3.4 percent annual increase in the previous month, as firms remained cautious in their borrowing activities.
Along with favorable supply-side factors—particularly, the sustained decline in food and oil prices and the broad stability in the peso, the moderation in domestic liquidity growth contributed to the deceleration in the rise in consumer prices—as the September inflation rate eased to 6.1 percent from 6.3 percent in the previous month.
The BSP will continue to watch closely monetary and financial developments in order to respond in an appropriate and timely manner to keep the economy along the non-inflationary growth path.