Domestic liquidity (M3) grew by 10.6 percent year-on-year (y-o-y) in December to reach P5.2 trillion. This growth was faster than the 9.8 percent expansion recorded in the previous month. On a monthly basis, seasonally-adjusted M3 expanded by 1.3 percent compared to the 2.0 percent (revised) month-on-month growth in November.
The growth in money supply was driven by the expansion in net domestic assets (NDA) by 19.2 percent y-o-y in December from 18.4 percent in the previous month, largely as a result of the sustained increase in net domestic credits. Net domestic credits grew by 7.8 percent, buoyed by the expansion in the claims on the private sector due to robust lending activity by commercial banks. Meanwhile, claims on the public sector contracted further by 14.0 percent in December (after declining by 9.5 percent in the previous month) as deposits of the National Government increased, reflecting the proceeds from the issuance of 25-year Retail Treasury Bonds in October.
Meanwhile, net foreign assets (NFA) decreased slightly by 0.1 percent y-o-y in December following a decline of 1.0 percent in November. The BSP’s NFA position increased by 4.2 percent, supported by steady foreign exchange inflows from overseas remittances and portfolio investments. However, the NFA of banks contracted further in December, driven largely by the continued increase in their foreign liabilities due to higher placements and deposits made by foreign banks with their local branches.
The continued expansion in domestic liquidity indicates that previous policy actions of the BSP to help support non-inflationary economic growth continue to work their way through the economy. Going forward, the BSP will closely monitor monetary conditions to ensure that liquidity in the financial system remains supportive of economic activity to the extent that the inflation outlook will allow.