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Domestic Liquidity Sustains Growth in October


Demand for money remained strong in October 2005 with domestic liquidity or M3 rising by 14.1 percent year-on-year to P2.248 trillion, based on data from the BSP’s Depository Corporations Survey (DCS).  However, this was a deceleration from the 14.8 percent year-on-year increase in domestic liquidity recorded in September 2005.  On a monthly basis, M3 expanded by 0.3 percent in October, compared to the 0.4 percent growth in the previous month. 

The sustained expansion in liquidity can be traced mainly to the increase in foreign assets of the BSP coupled with a reduction in its foreign liabilities.  Fueled by strong capital inflows from overseas Filipino workers (OFW) remittances, portfolio and direct investments, the BSP’s foreign assets increased year-on-year by around 9.7 percent while its liabilities declined by more than 50 percent.  Net foreign assets of depository corporations also increased, given the 2.9 percent expansion in their assets combined with a 5.1 percent decline in their liabilities.  

The growth of domestic credits to both the public and private sectors also contributed to the expansion in domestic liquidity.  Public sector credits grew by 1.3 percent in October mainly on account of loans extended to the local government and other public entities, as securities issued by the NG rose by 2.4 percent with the strengthening of the NG’s fiscal position. Private sector credits, which accounted for the bulk of the expansion in net domestic assets, expanded by 2.2 percent as banks resumed lending activities on improved NPL ratios. Commercial bank lending is expected to pick up as banks continue to unload their NPL’s to clean up balance sheets with the proposed extension of the effectivity date of the SPV Law.  

The BSP will continue to monitor the level of domestic liquidity to ensure that it is consistent with the BSP’s price stability objective.  The overall monetary policy stance will remain geared towards ensuring that emerging risks to inflation and inflation expectations are addressed in a timely and appropriate manner.  At the same time, monetary authorities will also ensure that the liquidity requirements of a growing economy are met, to further spur economic growth.   

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