Domestic liquidity or M3 expanded at a faster pace of 8.0 percent in May 2011 from 7.3 percent in April 2011 to reach P4.3 trillion. On a monthly basis, seasonally-adjusted M3 increased by 0.8 percent from a contraction of 0.7 percent (revised) in the previous month.
The steady increase in net foreign assets (NFA)-at 15.3 percent in May-continued to fuel the expansion of domestic liquidity. The BSP's NFA position grew by 35.7 percent due largely to sustained foreign exchange inflows from overseas Filipino remittances as well as portfolio and direct investments. Meanwhile, the NFA of banks declined further by 86.5 percent as their foreign liabilities increased while their foreign assets declined. Banks' foreign liabilities rose with the increase in bonds and bills payables as well as higher placements and time deposits made by the head offices/other branches of foreign banks with their Philippine branches. Meanwhile, the contraction of banks' foreign assets was due in part to the decrease in loan receivables from foreign banks.
Net domestic assets (NDA), meanwhile, declined at a slower pace of 6.2 percent from 9.3 percent in the previous month given the slower expansion in the net other items account (which includes revaluation and capital and reserve accounts as well as SDA placements of trust entities) in May. By contrast, the growth in net domestic credits rose to 7.7 percent with credits extended to the private sector expanding at a faster pace of 13.4 percent from 11.9 percent in the previous month. This trend is in line with the accelerated growth of bank lending to the productive sectors of the economy. Meanwhile, credits extended to the public sector contracted further due mainly to the decline in credits extended to the National Government (NG) given the continued increase in NG deposits with the BSP and other banks during the month.
The BSP continues to closely monitor monetary conditions to ensure that the amount of liquidity in the financial system remains in line with the BSP's price and financial stability objectives.