Domestic liquidity or M3 continued to post strong growth at 24.6 percent year-on-year in March, from the 22.4 percent increase registered in the previous month. On a month-on-month basis, seasonally adjusted M3 growth rose by 2.2 percent compared to 1.5 percent in February.
The acceleration in the growth of domestic liquidity was due mainly to the increase in the net foreign asset (NFA) position of depository corporations (DCS), which in turn was traced to sustained inflows from remittances and export earnings, as well as foreign direct and portfolio investments. Domestic credit activity also contributed to the expansion in liquidity, driven by the 20.7 percent rise in credits to the public sector. Similarly, growth in credits to the private sector continued, rising by 4.0 percent.
While the expansion in liquidity has not interrupted the downtrend in inflation as evident from the tame inflation readings for April, the BSP remains highly attentive to all possible inflation risks. Recently, the Monetary Board approved measures to address the potential price pressures that could arise should there be a persistent, excessive build-up in liquidity conditions. These measures include: (a) encouraging GSIS, SSS, and other GOCCs to deposit funds with the BSP; (b) allowing trust entities under BSP supervision to deposit funds with the BSP; and (c) allowing SDA placements of banks to be considered alternative compliance with the liquidity floor requirements for government deposits. The foregoing measures, which will take effect on 10 May 2007, are expected to deepen the BSP’s range of monetary policy tools in better managing liquidity.