Preliminary data show that domestic liquidity (M3) grew steadily by 4.4 percent to reach P1.692 trillion as of end-February 2004, the same rate of growth registered in the previous month. This development can be traced to the combined expansion in net foreign assets and net domestic credits of the monetary system. Meanwhile, seasonally-adjusted M3 increased by 0.2 percent following a 0.8 percent rise in January.
Deposit money banks’ net foreign assets rose significantly by 22.3 percent year-on-year in February 2004, an acceleration from the 4.8 annual growth rate in the previous month. This build-up in banks’ foreign assets can be traced partly to the accumulation of foreign exchange by banks in anticipation of their future requirements. Meanwhile, credits to the public sector in the form of fixed-yielding government securities continued to drive the expansion in net domestic credits.Public sector credits grew strongly by 21.2 percent in February, following a 14.9 percent year-on-year rise in January. Private sector credits grew modestly by 0.6 percent year-on-year in February.
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 further by 4.4 percent in January from the 3.6 percent year-on-year increase in the previous month. Meanwhile, average capacity utilization in manufacturing has remained relatively stable at 78 percent in January from 78.4 percent in the previous month. In addition, car sales continued to post double-digit year-on-year growth rates for five straight months at a hefty 50.6 percent in February. Bank lending continued to grow but at a modest pace of 0.8 percent in January.
In the months ahead, the stance of monetary policy will continue to ensure appropriate level of liquidity that is supportive of the economy’s objectives of price stability and sustained economic growth. At the same time, the BSP will also continue to watch closely the evolving macroeconomic developments in order to mitigate potential threats to the inflation outlook.