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Domestic Liquidity Growth Eases in April


Domestic liquidity (M3) grew by 32.1 percent year-on-year at end-April 2014 to    P6.9 trillion. This increase was slower than the revised 34.7-percent expansion recorded in March. On a month-on-month basis, seasonally-adjusted M3 grew by 0.2 percent, following the revised 1.1-percent rise in the previous month.

Money supply continued to expand due to the sustained demand for credit in the domestic economy. Domestic claims rose by 12.3 percent in April 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 1.5 percent as the deposits with the BSP 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 increased by 7.1 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, business process outsourcing receipts, and portfolio investments. Similarly, the NFA of banks 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 in previous months, the strong M3 growth reading in April continues to reflect 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.

With the recent policy measures to adjust the reserve requirement of banks, the growth in domestic liquidity is expected to remain consistent with the current pace of activity in the real sector. Going forward, the BSP will continue to closely monitor monetary and credit conditions and deploy appropriate measures as necessary to ensure that liquidity dynamics stay in line with the BSP’s price and financial stability objectives.

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