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Domestic Liquidity Growth Continues to Slow Down in July

08.31.2007

Growth in domestic liquidity or M3 sustained a decelerating trend for the third consecutive month at 18.7 percent year-on-year in July from 19.4 percent in June.  On a month-on-month basis, seasonally adjusted M3 rose by 0.7 percent in July, lower than the 1.2 percent expansion in June. The continued slowdown in liquidity is seen to reflect in part the effect of monetary measures initiated by the BSP in May.

The slowdown in net domestic assets moderated the growth in domestic liquidity, which continues to be driven mainly by the steady rise in net foreign assets.  The year-on-year growth of net domestic assets decelerated to 0.4 percent in July from 3.8 percent in June while the growth of net foreign assets went up to 39.6 percent from 31.1 percent for the same period.  Credit extended to the public sector expanded at a slightly faster pace from 10.5 percent in June to 10.7 percent in July, while credit to the private sector grew more briskly from 6.0 percent to 7.2 percent for the same period.

Policy measures to absorb liquidity are expected to keep M3 growth at a manageable level, contributing to the overall benign inflation outlook.  Nonetheless, the BSP will remain vigilant so that price stability is maintained and the upward trajectory of economic growth is sustained.

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