Preliminary data on domestic liquidity (M3) indicated that the demand for money expanded by 6.1 percent year-on-year to reach P1.73 trillion as of end-May 2004. The sustained pace of growth in M3 can be traced to the increase in net foreign assets (NFA) of the monetary system and the improvement in net domestic credits. The growth in May was, however, a slight deceleration from the 6.5 percent year-on-year growth in the previous month. Meanwhile, the seasonally-adjusted M3 grew month-on-month by 1.4 percent in May, an acceleration from the 0.3 percent growth registered in the previous month.
The net foreign assets of the monetary system rose by 8.6 percent in May due mainly to an improvement in BSP’s NFA, arising from the combined effect of an increase in BSP’s gross international reserves and a decline in BSP’s short-term foreign liabilities. Meanwhile, the growth in domestic credits was accounted for mainly by credits to the public sector, which rose by 20.5 percent. Credits to the private sector likewise expanded by 3.4 percent, a significant increase from the previous month’s 1.97 percent.
The continuing growth in the overall demand for credit was accompanied by improvements in domestic demand, as reflected in various indicators of domestic economic activity. In particular, the value of production index (VAPI) increased by 2.8 percent in April, a reversal from the previous month’s 5 percent year-on-year drop. Meanwhile, average capacity utilization in manufacturing remained steady at 78.8 percent in May from that of the previous month. In addition, car sales continued to post double-digit year-on-year growth rates for eight straight months at a hefty 145.8 percent in May. Bank lending continued to grow at a modest pace of 0.9 percent in April.
In the months ahead, monetary authorities will continue to monitor developments in the real and monetary sectors to ensure that liquidity conditions remain supportive of the economy’s low-inflation growth target. The BSP will also closely watch the evolving macroeconomic conditions including risks to inflation in order to implement the appropriate monetary policy response.