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Domestic Liquidity Growth Remains Strong in February

03.31.2014

Domestic liquidity (M3) grew by 36.4 percent year-on-year at end-February 2014 to reach P6.9 trillion. This increase was slower than the revised 37.3-percent expansion recorded in January. Month-on-month, seasonally-adjusted M3 rose slightly by 0.9 percent, following the revised 5.1-percent growth in the previous month.

Money supply continued to expand due to the sustained demand for credit in the domestic economy.  Domestic claims rose by 14.3 percent in February as bank lending accelerated further, with the bulk going to real estate, renting, and business services, utilities, wholesale and retail trade, manufacturing, as well as financial services. Meanwhile, public sector credit grew at a slower pace of 11.9 percent as the deposits of the National Government (NG) increased, reflecting in part the proceeds from the auction of government securities as well as revenue collections from various agencies.

Net foreign assets (NFA) in peso terms also increased by 7.5 percent partly on account of the higher valuation of foreign assets due to the depreciation of the peso relative to year-ago levels. The BSP’s NFA position rose on the back of continued robust foreign exchange inflows coming mostly from overseas Filipinos’ remittances and business process outsourcing receipts. The NFA of banks likewise increased as banks’ foreign assets expanded at a faster pace relative to the growth in their foreign liabilities. Banks’ foreign assets expanded due mainly to the growth in foreign loans and receivables, while banks’ foreign liabilities rose on account of higher deposits of foreign residents as well as placements made by foreign banks with their local branches.

The strong M3 growth reading in February reflects in large part the broad decline in the SDA placements of trust entities compared to their levels a year ago, in line with the BSP’s operational adjustments in the SDA facility that were completed in November 2013.

With the recent policy measure to adjust the reserve requirement of banks, the growth in domestic liquidity is expected to move toward its long-run trend consistent with the pace of expansion in the real sector. The BSP continues to assess monetary conditions closely to ensure that liquidity dynamics stay in line with the BSP’s price and financial stability objectives. Going forward, the BSP also remains prepared to deploy measures, as needed, to guard against potential risks to financial stability that could arise from continued strong liquidity growth.

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