Preliminary data on domestic liquidity (M3) indicate that year-on-year growth in M3 rose by 5.3 percent to P1.73 trillion as of end-September 2004. The growth in M3 was traced to the expansion in the net foreign assets (NFA) of the Bangko Sentral ng Pilipinas and the improvement in net domestic credits to both the private and public sectors. The growth in September, however, was a deceleration from the 6.1 percent year-on-year increase in the previous month due mainly to the decline in public sector credits, particularly credits to the National Government. In seasonally adjusted terms, M3 contracted slightly by 0.26 percent month-on-month in September in contrast to the 0.27 percent monthly increase in August 2004.
The NFA of the BSP rose by 12.9 percent in September, due to the combined effect of the increase in the BSP’s foreign assets and decline in its short-term foreign liabilities. Meanwhile, the growth in domestic credits was accounted for mainly by credits to the private sector, which rose by 4.6 percent. Credits to the public sector likewise expanded by 3.9 percent as banks continued to purchase government securities.
The continuing—though moderate—growth in domestic liquidity was accompanied by improvements in domestic demand, as reflected in various indicators of domestic economic activity. In particular, average capacity utilization in August 2004 was recorded at 79.4 percent as a percentage of total capacity in the manufacturing sector. This was slightly lower than the 79.7 percent capacity utilization rate in the previous month but higher than the 78.7 percent utilization rate in August 2003. Both exports and imports reflected improvements, growing on a year-on-year basis by 13.7 percent and 8.9 percent, respectively, in August 2004. This was a notable turnaround from their respective contraction of 1.0 percent and 8.5 percent in August 2003. Employment conditions also showed improvements during the third quarter, with the unemployment rate dropping to 11.7 percent from 12.6 percent during the same period in the previous year. In addition, car sales posted a hefty 80.1 percent increase in August 2004. Bank lending continued to grow at a modest pace of 5.5 percent in August 2004 from 3.8 percent in the same month last year.
In the months ahead, monetary authorities will continue to monitor developments in the real and monetary sectors to ensure that liquidity conditions remain consistent with the price stability objective conducive to sustainable economic growth. The BSP will also closely watch the evolving macroeconomic conditions including risks to inflation in order to implement the appropriate monetary policy response.