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Domestic Liquidity Growth Continues in February


Domestic liquidity or M3 expanded at a slightly faster pace of 9.8 percent in February 2011 from 9.6 percent in January 2011 to reach P4.2 trillion. On a monthly basis, seasonally-adjusted M3 grew by 1.3 percent from the marginal increase in the previous month.

The larger increase in net foreign assets (NFA) of 19.3 percent in February from 17.8 percent in the previous month fueled the expansion in domestic liquidity. The BSP's NFA position grew by 32.9 percent, due in part to steady foreign exchange inflows from overseas remittances as well as portfolio and direct investments. Meanwhile, the NFA of banks declined further by 62.3 percent from the 63.7 percent contraction in the previous month. This developed as a result of the significant increase in foreign liabilities related to higher placements and time deposits made by the head offices/other branches of foreign banks in Philippine branches, given solid growth prospects of the Philippine economy.

Net domestic assets (NDA), meanwhile, decreased further by 5.1 percent in February following the decline of 4.2 percent in January. This was due largely to the accelerated 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. By contrast, net domestic credits rose further by 7.5 percent, due to the stronger increase in credits extended to the private sector. This trend is consistent with the continued expansion in bank lending to the productive sectors of the economy. Meanwhile, the growth in credits extended to the public sector slowed down as credits extended to the National Government continued to decline.

The BSP will continue to closely monitor monetary conditions to ensure that domestic liquidity remains in line with the BSP's price stability objective, while providing ample funds for the economy's growth requirements.

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