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Money Supply, Domestic Credit Sustain Growth in July


Domestic liquidity or M3 rose by 10.6 percent to reach P1.3 Trillion at end-July 2000 from its year-ago level.

The expansion in the money supply was reflected in higher credit extended by the Deposit Money Banks (DMBs) at end-July 2000, which rose by 9.2 percent year-on-year compared to 8.1 percent in the previous month. The expansion in bank credits was driven by higher public and private sectors demand.  In particular, year-on-year private sector credit growth was stronger at 6.6 percent as of end-July compared to 4.6 percent in the previous month.  This highlights the stronger private sector economic activity.

Meanwhile, total loans outstanding of commercial banks (a primary component of DMBs’ net domestic credits) at P1.4 trillion at end-July 2000, continued to grow by 5.4 percent year-on-year from 4.7 percent at end-June.  In particular, loans to the manufacturing sector posted ninth consecutive month of sustained increase since November 1999 with a significant year-on-year growth of 15.1 percent at end-July. 

The expansion in bank lending in July was due mainly to the increased demand for loans in the following key sectors: electricity, gas and water, mining and quarrying, manufacturing, transportation storage and communication and financial institutions, real estate and business services or firebs.  In particular, the bulk of these loans was extended to the manufacturing and firebs sectors, along with the wholesale and retail trade sector. These sectors accounted for a combined 69.6 percent of the total loans outstanding as of end-July.

Credit expansion in July 2000 along with other indicators of business conditions suggest further strengthening of the domestic economy. Real GNP grew stronger than expected in the second quarter to yield a first-semester growth rate of 4.0 percent.  The steady growth in commercial bank lending shows continued appetite for funds in financing the requirements of a growing real sector.  This, in turn, has translated into an increased manufacturing activity, both in terms of higher volume and value of production as of June from the previous year.  Similarly, consumer confidence showed continued upbeat. Power sales of Meralco rose by 7.8 percent in the first seven months of 2000 compared to a decline of 0.6 percent in the same period last year.  Likewise, car sales have been sustained, showing a rise of  13.1 percent for the January-July  period relative to a decrease of 30.3 percent last year.

These favorable credit  translated into an  improved business outlook for the second semester.  Based on the BSP survey of business expectations conducted in the first semester of 2000, majority of respondents (46.1 percent) expect business conditions to improve in the second semester of 2000.

In view of this favorable economic condition, monetary policy  will remain supportive of economic growth objectives while keeping inflationary pressures at bay.  The Bangko Sentral will continue to observe closely the developments in both the domestic economy and the external sector in order to guide the conduct of appropriate monetary policy stance.   

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