Preliminary data on domestic liquidity (M3) indicate that demand for money grew by 4.1 percent year-on-year to reach P1.7 trillion as of January 2004. The increase in M3 was traced mainly to the stable growth in the levels of domestic credits to both the public and private sectors. Similarly, seasonally adjusted M3 increased month-on-month by 0.6 percent in January 2004 as against a 0.8 percent decline in December 2003.
Looking at the components of M3, the net foreign assets and net domestic assets of the monetary system—comprising of the monetary authorities and the banking system— grew at an annual rate of 12.2 percent and 2.3 percent, respectively, in January. The increase in foreign assets of the banking system was due partly to foreign exchange inflows from Overseas Filipino Workers’ (OFW’s) remittances during the extended holiday period in early January. The 12.1 percent growth in public sector credits sustained the increase in net domestic assets. Meanwhile, private sector credits rose by 2.2 percent, up slightly from the 1.4 percent increase in the previous month.
The continued improvement in credit demand is consistent with the overall trend of improving domestic demand, as reflected in various indicators of economic activity. In particular, the country’s Gross Domestic Product grew by 4.5 percent in 2003, an increase from the growth recorded in the last two years. The average capacity utilization of the manufacturing sector also rose to 78.2 percent as of end-December 2003 from 74.5 percent utilization rate during the same period in the previous year. Likewise, the volume of passenger cars sold in January 2004 grew year-on-year by 31.4 percent, a significant turnaround from the 3.6 percent decline recorded in January 2003.
In the period ahead, monetary authorities will continue to emphasize caution in formulating the stance of monetary policy while ensuring an appropriate level of liquidity in the financial system, consistent with the economy’s objective of price stability and sustainable growth. The BSP will also continue to monitor closely the evolving macroeconomic conditions for prices and output in order to mitigate any pressures to the inflation outlook.