Preliminary data on domestic liquidity (M3) indicate that demand for money continued to grow by 6.1 percent year-on-year to reach P1.74 trillion as of end-October 2004. The increase in M3 was traced mainly to the increase in net foreign assets and the growth in the levels of domestic credits extended to both the public and private sectors. Similarly, seasonally adjusted M3 increased month-on-month by 0.6 percent in October 2004 as against a 0.26 percent decline in September 2004.
Looking at the components of M3, the net foreign assets and net domestic assets of the monetary system—comprising of the monetary authorities and the banking system— grew at an annual rate of 8.1 percent and 7.3 percent, respectively, in October. The increase in the net foreign assets (NFA) of the monetary system is traced mainly to the decrease in its liabilities. Meanwhile, the increase in net domestic assets was sustained by the growth of credits to the public sector, mainly the national government. Private sector credits rose by 4.8 percent, up slightly from the 4.6 percent increase recorded in the previous month.
The growth in M3 came against a backdrop of some improvements in real sector economic activity and expectations that the domestic economy will remain on a steady growth path for the remainder of the year. Going forward, monetary authorities will continue to monitor and assess the evolving real sector activities at the same time, guarding against the possible persistence of price pressures. This will provide support to the improvement in credit demand and sustainability of economic growth.