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Domestic Liquidity Growth Accelerates in August


Domestic liquidity or M3 grew at a faster pace of 9.4 percent in August 2011 from 8.3 percent in July 2011 to reach P4.3 trillion. On a monthly basis, seasonally-adjusted M3 increased by 1.1 percent from a contraction of 1.0 percent in the previous month.

Fueling the expansion in domestic liquidity was the accelerated growth in net foreign assets (NFA) at 21.7 percent in August from 17.5 percent in July. The BSP’s NFA position grew faster due largely to sustained foreign exchange inflows from overseas Filipino remittances as well as from portfolio and direct investments. Meanwhile, the NFA of banks declined further in August due to the continued increase in their foreign liabilities, combined with a sustained decline in their foreign assets. Banks’ foreign liabilities rose due largely to higher placements made by foreign banks, including head offices/other branches of foreign banks, with resident banks. Meanwhile, the decrease in banks’ foreign assets was due in part to the contraction in loan receivables from foreign banks.
Net domestic assets, meanwhile, decreased further by 10.6 percent in August from the 6.3 percent contraction in July, given the faster expansion in the net other items account (which includes, among other things, revaluation and capital and reserve accounts as well as SDA placements of trust entities). Net domestic credits expanded further by 8.9 percent with the sustained increase in credits extended to the private sector by 14.9 percent, consistent with the continued strong growth of bank lending to businesses and households. By contrast, credits extended to the public sector declined anew due largely to the decrease in credits extended to the National Government (NG). This was due to the favorable cash position of the NG as evident in the steady increase in NG deposits with the BSP and other banks during the month.

The continued strong growth in domestic liquidity indicates that ample funds are available to support the credit needs of the economy. Going forward, the BSP will continue to closely watch monetary conditions to ensure that the liquidity in the financial system remains in line with the BSP’s price and financial stability objectives.

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