Domestic liquidity (M3) continued to grow at 10.6 percent year-on-year in September, reflecting a deceleration from the 11.1 percent in August. The slowdown in M3 growth can be attributed to the combined impact of the increase in the liquidity reserve requirement in July and august and the moderation in demand for domestic credit.
Domestic credits of the monetary system grew by 2.1 percent in September from the 4.1 percent year-on-year increase in the previous month. The pace of growth in domestic credits was driven mainly by the sustained increase—albeit at a slower pace—in credit activities in the public sector, which registered a 11.3 percent growth from the 14.2 percent year-on-year rise in August.
Private sector credits declined by 1.5 percent compared to the 0.2 percent year-on-year increase in august as spare capacity in the manufacturing sector limited firms’ need for credits.
Meanwhile, recent leading indicators of demand and supply point to improved economic activities. The volume of production index (VOPI) in manufacturing grew by 2.2 percent in August from the level a year ago. This reflected a reversal from the 4.9 percent year-on-year contraction recorded in the previous month. Similarly, the value of production index (VAPI) in manufacturing rose by 15.2 percent, a significant improvement from the 8.7 percent year-on-year increase registered in July. These indicators along with seasonal increase in spending during the holiday season suggest a stronger economic activity in the coming months.
In the light of these developments, the BSP will continue to ensure that an appropriate level of liquidity is made available in the system to support a non-inflationary growth path.