Preliminary data on domestic liquidity (M3) indicated that demand for money expanded by 4.9 percent year-on-year to reach P1.7 trillion as of end-March 2004, following the 4.4 percent growth posted in the previous month. This development can be traced to the expansion in both net foreign assets of the monetary system and the improvement in the level of net domestic credits to both the public and private sectors. Meanwhile, seasonally-adjusted M3 maintained its February growth of 0.3 percent in March.
The steady growth in the net foreign assets may be traced mainly to the increase in foreign assets of the monetary system, mainly in the form of investments in foreign currency-denominated securities by banks and the BSP. In March, net foreign assets increased substantially by 27.8 percent year-on-year relative to the 10 percent rise posted in the previous month following significant improvements in the BSP’s net foreign asset position, with the deposit by government of the proceeds from its foreign borrowings. Meanwhile, the growth of credits to the public sector decelerated to 14.3 percent in March from the previous month’s 17.5 percent annual rise. Likewise, credits to the private sector slowed down further to 0.1 percent year-on-year from 0.6 percent in the previous month.
The growth in the overall demand for credit is consistent with the steady improvement in domestic demand, evident in various indicators of domestic economic activity. Average capacity utilization in manufacturing increased slightly by 0.3 percent in February as against the previous month’s contraction of 0.1 percent. The value of production index (VAPI) continued to rise by 4.8 percent in February. In March, car sales continued to post a double-digit annual growth of 86.3 percent while Meralco’s energy sales increased by 7.8 percent.
Going forward, the stance of monetary policy will ensure an appropriate level of liquidity that is supportive of the BSP’s objectives of price stability and sustained economic growth. At the same time, the BSP will continue to closely monitor the evolving macroeconomic developments in order to mitigate potential threats to the inflation outlook.