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Domestic Liquidity Sustains Strong Growth in June


Demand for money continued to grow strongly in June 2005 as domestic liquidity or M3 rose by 12.8 percent year-on-year to P2.21 trillion, based on data from the BSP’s Depository Corporations Survey (DCS).*  This was a further acceleration from the 12.2 percent year-on-year increase in domestic liquidity recorded in May 2005.  On a monthly basis, M3 rose steadily by 1.4 percent in June, as in the previous month.

The continued rise in domestic liquidity can be traced mainly to the build-up in banks’ foreign exchange position on the back of robust foreign exchange inflows.  Deposit money banks’ (DMBs) net foreign assets more than tripled due to robust foreign exchange inflows coming from remittances by overseas Filipino workers and portfolio investments.  In addition, the improvements in the BSP’s net international reserves –arising from lower foreign liabilities and accumulation of foreign assets– helped sustain the expansion in domestic liquidity.

Private sector credits rose by 5.3 percent for the month as the overall pace of bank lending activity picked up.  However, public sector credits contracted by 5.23 percent in June with credits to both the National Government and semi-government entities, declining by 4.71 percent and 8.32 percent, respectively.  The decline in credits to the NG may be attributed to recent improvements in the NG’s fiscal position that resulted in lower net borrowings from the financial system.   

Going forward, monetary authorities will continue to monitor the level of money supply in the financial system to ensure an appropriate level of liquidity to support the economy’s growth requirements, while guarding against any build-up in price pressures.


* The DCS, which replaces the Monetary Survey (MS) as the basis for measuring domestic liquidity, features an expanded list of surveyed institutions that includes the BSP, commercial banks, thrift banks, rural banks, non-stock savings and loan associations and non-banks with quasi-banking functions.  The previously used MS included only data from the BSP and the commercial banks and some rural banks in its survey.

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