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Domestic Liquidity Growth Accelerates in December

02.09.2011

Domestic liquidity or M3 rose at a faster pace of 10.6 percent year-on-year in December from 7.5 percent in November to reach P4.4 trillion during the month. This brought the full-year (2010) average M3 growth rate to 9.7 percent. On a monthly basis, seasonally-adjusted M3 increased by 1.0 percent from a growth of 1.2 percent (revised) in the previous month.

The faster growth in net foreign assets (NFA) of 17.7 percent in December from 14.9 percent in the previous month continued to drive the expansion in domestic liquidity. The growth in the BSP’s NFA position accelerated to 33.7 percent from 29.1 percent in November, due in part to steady foreign exchange inflows from overseas remittances, portfolio investments, and export receipts. Meanwhile, the NFA of banks declined further by 64.7 percent from the 56.0 percent contraction in November, owing to a significant increase in foreign liabilities related to the rise in intercompany accounts or advances from head offices of foreign banks.

Net domestic assets (NDA) rose slightly by 0.4 percent in December from a contraction of 1.2 percent in the previous month as net domestic credits continued to expand. Credits extended to the private sector rose by 8.7 percent, in line with the steady uptrend in bank lending activities which, in turn, is consistent with the solid pick-up in domestic demand. Credits extended to the public sector also increased by 8.7 percent, bolstered by the expansion in credits extended to the National Government, local governments, and other public entities.

Sustained M3 growth indicates that monetary conditions remain consistent with the stronger underlying momentum of the economy. The BSP will continue to closely monitor domestic monetary conditions to ensure that liquidity remains in line with the BSP’s price stability objective while at the same time being supportive of economic growth.

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