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Domestic Liquidity Growth Decelerates in October

12.13.2011

Domestic liquidity or M3 grew at a slower pace of 6.9 percent in October 2011 from 7.4 percent in September 2011 to reach P4.3 trillion. On a monthly basis, seasonally-adjusted M3 decreased further by 0.7 percent following a 0.2 percent (revised) decline in the previous month.

Net foreign assets (NFA) continued to grow, albeit at a slower pace of 17.9 percent in October from 24.9 percent in the previous month. The growth of the BSP’s NFA position remained strong at 31.8 percent in October from 40.1 percent in September, driven by steady foreign exchange inflows from overseas Filipino remittances and portfolio investments. However, the NFA of banks decreased further in October due to the continued increase in their foreign liabilities, combined with a faster decline in their foreign assets. Banks’ foreign liabilities rose due largely to higher placements made by foreign banks with local banks. Meanwhile, the fall in banks’ foreign assets was due in part to the contraction in loan receivables from foreign banks.
 
Net domestic assets contracted at a slower rate of 9.0 percent in October from the 15.0 percent decline in September, given the slower 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 11.3 percent as credits extended to the private sector increased by 17.0 percent, consistent with the continued strong growth of bank lending to firms and households. Meanwhile, credits extended to the public sector declined at a decelerated pace due to the slower decline in credits extended to the National Government and the slightly faster expansion in credits granted to the local government and public entities.

Despite the recent slowdown in the growth of domestic liquidity, the BSP considers that liquidity in the financial system remains sufficient to fund the country’s growth requirements. Going forward, the BSP will continue to ensure that monetary conditions remain supportive of economic growth to the extent that the inflation outlook would allow.

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