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Growth in Domestic Liquidity Slows Down in January But Net Domestic Credit Continues to Improve


Domestic liquidity or M3 grew by 13.6 percent to reach P 1.281 trillion as of end-January 2000 from last year.  Growth of M3 decelerated from the 19.3 percent increase in December 1999 due to the banks’ move to re-channel  their excess liquidity  to  the  Bangko Sentral  after  building  more than adequate provision for the Y2K contingency.  This was also reflective of the seasonally low demand for money in January   due to lower post-holiday consumption spending.

In terms of composition, the slowdown in the end-January M3 level was due mainly to the 17.1 percent decline in the month-on-month growth in   average reserve money in January 2000 as against the 21.7 percent expansion  in December 1999. This was driven by the increase in BSP’s open market operations, particularly through the overnight reverse repurchase (RRP) window, special deposit accounts and sale of some of its holdings of treasury bills.

The year-on-year growth of  net domestic credit (NDC) of deposit money banks (DMBs) rose by 1.75 percent in January 2000 from 1.01 percent growth registered in December 1999. By sector, net domestic credits to the private sector rose  by 1.52 percent in January 2000, an improvement over the of year-on-year growth  of negative 1.32 percent  in the previous month.  On the other hand, public sector credit slowed down to 2.62 percent as against 10.98 percent annual growth registered in December 2000.

The expansion in domestic liquidity was accompanied by the slight decline in loans outstanding of commercial banks reaching P1.325 trillion as of end-January 2000. At this level, however, the year-on-year growth of banks’ loan portfolio dropped to 0.2 percent from 0.5 percent rise registered in December 1999. Relative to the level in December 1999, bank lending continued to decline by  2.2 percent in January.

The decline in bank lending was  evident in major productive sectors namely the wholesale and retail trade, transportation, storage and communication, agriculture, fisheries and forestry, manufacturing and construction sectors.

However, when viewed from the sectoral data, banks’ loanable funds continued to be channeled to the productive sectors of the economy. In particular, the manufacturing, wholesale and retail trade as well as the financial institutions, real estate and business services sectors continued to occupy the bulk or 68.3 percent of banks’ total loans outstanding in January 2000.

The continued growth in domestic credit would require greater macroeconomic stability and continued pursuit of complementary reform  measures to reinforce market confidence and stimulate investments.  This is essential in ensuring higher and sustainable economic growth.  For its part, the Bangko Sentral will continue to  provide a policy environment  aimed at  promoting  credit growth along with ensuring  an  appropriate level of domestic liquidity  consistent  with  the objective of low inflation in an environment of stable foreign exchange market. The BSP’s cautious yet flexible monetary policy will continue to be guided by movements of key economic indicators and external developments. 

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