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Domestic Liquidity Growth Eases Further in July

08.29.2014

Domestic liquidity (M3) grew by 18.3 percent year-on-year in July to reach P7.1 trillion. This increase was slower than the (revised) 23.3-percent expansion recorded in June. On a month-on-month basis, seasonally-adjusted M3 increased by 2.5 percent, following a slight decline of 0.3 percent in the previous month.

Money supply continued to increase due largely to the sustained demand for credit in the domestic economy. Domestic claims rose by 13.0 percent in July as bank lending growth accelerated further.  The bulk of bank loans during the month was channeled to key production sectors such as real estate, renting, and business services, wholesale and retail trade, manufacturing, utilities, and financial intermediation. Meanwhile, public sector credit decreased by 4.1 percent following a (revised) expansion of 8.7 percent in June as the deposits of the National Government (NG) with the BSP increased at a faster pace, reflecting in part proceeds from the auction of government securities as well as revenue collections of various agencies.

Net foreign assets (NFA) in peso terms increased by 1.9 percent in July from 5.7 percent (revised) in the previous month. The NFA of banks increased as banks’ foreign assets expanded at a faster pace relative to that of their foreign liabilities. Banks’ foreign assets expanded due mainly to the growth in their deposits with other banks and in their foreign loans and receivables. Meanwhile, banks’ foreign liabilities rose on account of higher deposits of foreign residents as well as placements and deposits made by foreign banks with their local branches.

The previous adjustments in reserve requirements as well as in the interest rates on the special deposit account (SDA), reverse repurchase (RRP), and repurchase (RP) facilities are expected to continue to bring domestic liquidity growth in line with the pace of expansion of the real sector. Going forward, the BSP remains prepared to deploy all necessary measures to ensure that liquidity dynamics stay consistent with the BSP's objective of maintaining price and financial stability.

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