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Domestic Liquidity Continues to Increase in January


Domestic liquidity or M3 grew by 9.6 percent in January 2011 from 10.6 percent in December 2010 to reach P4.2 trillion. On a monthly basis, seasonally-adjusted M3 was broadly unchanged after growing by 1.0 percent in the previous month.

The sustained growth in net foreign assets (NFA) of 17.8 percent in January from 17.7 percent in the previous month fueled the expansion in domestic liquidity. The BSP's NFA position continued to grow by 33.0 percent, due in part to steady foreign exchange inflows from overseas remittances, portfolio investments, and export receipts. Meanwhile, the NFA of banks declined further by 63.7 percent from the 64.7 percent contraction in December, owing to the marked increase in foreign liabilities related to higher placements and time deposits made by the head office and other branches of foreign banks to Philippine branches given firmer growth prospects of the Philippine economy.

Net domestic assets (NDA), on the other hand, contracted by 4.2 percent in January from a growth of 0.4 percent in December 2010. This was due largely to the faster expansion of the net other items account (which includes revaluation and capital and reserve accounts as well as the SDA placements of trust entities), which pulled down domestic liquidity. Nevertheless, net domestic credits continued to rise, albeit at a slower pace of 7.9 percent from 8.7 percent in the previous month, given the accelerated increase in credits extended to the private sector. This trend is consistent with the continued expansion in bank lending to productive sectors of the economy. Meanwhile, the growth in credits extended to the public sector slowed down as credits extended to the National Government contracted.

The continued growth in M3 indicates that liquidity remains adequate to support the funding requirements of the country's economic expansion. 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 supportive of economic growth.

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