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Domestic Liquidity Sustains Expansion in October

11.29.2016

Preliminary data show that domestic liquidity (M3) grew by 12.8 percent year-on-year to P8.9 trillion in October, slightly faster than the 12.7-percent (revised) expansion in the previous month. On a month-on-month seasonally-adjusted basis, M3 increased by 1.2 percent.

Demand for credit remains the principal driver of money supply growth. Domestic claims grew by 16.7 percent in October from 16.2 percent (revised) in September due largely to sustained growth in credit to the private sector. Growth in bank loans remains strong on account of lending to key production sectors such as real estate activties; electricity, gas, steam and airconditioning supply; wholesale and retail trade, repair of motor vehicles and motorcycles; manufacturing; and information and communication. Meanwhile, net claims on the central government expanded by 24.8 percent from 22.6 percent (revised) a month earlier as a result of continued withdrawals by the National Government of its deposits with the BSP in line with continued efforts to raise fiscal spending.

Net foreign assets (NFA) in peso terms grew by 8.7 percent in October from 13.6 percent (revised) in the previous month. Foreign exchange inflows coming from overseas Filipinos’ remittances, business process outsourcing receipts, and portfolio investments were the main contributors to the increase in the BSP’s NFA position. Meanwhile, the NFA of banks expanded due mainly to growth in banks’ foreign assets resulting from higher deposits with other banks and investments in marketable debt securities.

The expansion in M3 remains manageable and consistent with the BSP’s current outlook for inflation and economic activity. Moving forward, the BSP will continue to closely monitor monetary conditions to ensure that overall domestic liquidity dynamics stay in line with its price and financial stability objectives.

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