Domestic liquidity or M3 rose significantly by 13.2 percent in September to reach P1.206 trillion. This rate of growth was an acceleration from the 11.6 percent year-on-year growth registered a month ago. On a monthly basis, M3 sustained its growth at 1.6 percent, from 1.1 percent in the previous month. This was also reflected in the continued growth in the seasonally adjusted M3, which was recorded at 1.4 percent in September 1999.
The continued expansion in domestic liquidity reflected the steady expansion in the loans outstanding of commercial banks, which reached P.365 trillion as of end-September 1999. At this level, total loans outstanding of commercial banks showed a smaller year-on-year decline of 0.2 percent in September compared to 3.4 percent in the previous month. On a month-on-month basis, bank lending grew by 1.2 percent in September from 2.0 percent in the previous month. The steady month-on-month increase in the banks’ loan portfolio since June signals a relaxation of banks conservative and cautious lending stance. This also reflected an increase in aggregate demand.
By sector, bank lending in September grew fastest in the community, social and personal services sector (up by 5.9 percent month-on-month) and the construction sector (up 5.5 percent month-on-month). Loans to the agricultural and manufacturing sectors registered improvements, increasing by 0.7 percent and 0.5 percent in September, respectively, after declining by 2.8 percent and 0.1 percent, respectively, in the previous month. In terms of relative shares, the bulk of lending in September went to the banking sector (28.5 percent), manufacturing (26.0 percent), and wholesale and retail trade (14.2 percent).
The sustained monthly growth in the loan portfolio of commercial banks, in turn, translated into a positive growth in domestic credits of deposit money banks (DMBs) 0f 0.15 percent in September over the level a month ago. On an annual basis, domestic credits declined by a smaller 1.64 percent. This contraction was lower than the 2.3 percent year-on-year decline recorded in August.
The sustained improvement in domestic liquidity and bank lending demonstrates resurgence in economic activity in response to a more favorable market outlook. Robust export growth underlies the recovery of the real sector. Inflation remains subdued despite recent cost pressures brought about by the series of oil price increases, wage adjustments and transport hike. Moreover, the country’s external payments position remains strong.
From the perspective of monetary policy, the BSP shall continue to maintain comfortable margins of over performance in its operating monetary targets, reserve money (RM) and base money (BM) relative to program levels. This is aimed at containing the impact of the recent cost pressures on prices of consumer goods and services and ensuring the stability of the foreign exchange market.