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Domestic Liquidity Growth Higher in November

01.10.2012

Domestic liquidity or M3 grew at a faster pace of 7.2 percent in November 2011 from 6.9 percent in October 2011 to reach P4.4 trillion. On a monthly basis, seasonally-adjusted M3 increased by 0.9 percent from a contraction of 0.7 percent in the previous month.

Net foreign assets (NFA) continued to grow, albeit at a slower pace of 15.6 percent in November from 17.9 percent in the previous month. The growth of the BSP’s NFA position remained strong at 24.6 percent in November from 31.8 percent in October, driven by steady foreign exchange inflows from overseas remittances and portfolio investments. However, the NFA of banks decreased further in November due to the continued increase in their foreign liabilities, combined with a 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 7.1 percent in November from the   9.0 percent decline in October as the sustained strong expansion in the net other items account (which includes, among other things, SDA placements of trust entities as well as revaluation and capital and reserve accounts) was moderated by the acceleration in the growth of net domestic credits. Reflecting the continued strong growth of bank lending to firms and households, net domestic credits expanded by 12.8 percent as credits extended to the private sector rose by 16.1 percent. Similarly, credits extended to the public sector increased by 5.8 percent, after seven consecutive months of contraction, due to the faster expansion in credits granted to local government and other public entities.

The steady growth in domestic liquidity indicates that liquidity in the financial system remains in line with the economy’s growth trajectory. Going forward, the BSP will continue to ensure that monetary conditions remain supportive of economic growth to the extent that the inflation outlook will allow.

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